City Developments on a fast growth track: DBS

Major revenues from its pre-sold units and China expansion will soon kick in.

Over the next two to three years, City Development will begin reaping the earnings from these residential projects, said DBS. Add to this a healthy outlook for its hotel segment and this results in a bullish growth outlook for the property developer.

Here's more from DBS

Results in line. City Dev’s results were largely within expectations. The group reported a 2% increase in net profit to S$798.6m on a 6% better topline of S$3.28bn for FY11. Stripping out the effect of asset divestments of S$230.7m, bottomline would have risen 5% y-o-y. Operating improvement came mainly from higher development contributions, where PBT jumped 27% to S$536m and made up 47% of PBT. The group had locked in a total of S$2.1bn worth of sales in FY10 and progressive billings should underpin profits. Hotel operations also recorded 6% Revpar growth, led by London, New York and Singapore. The group has proposed a final DPS of 13Scts on top of a 5Scts interim DPS, translating to a yield of 1%.

Growth drivers in place. Looking forward, the group has its growth drivers in place, coming from healthy locked in residential pre-sales, expanding its China development business as well as refurbishing some of its hotels. In addition to the S$2.1bn locked in sales, it had chalked another S$1.75bn of sales in FY11 and this will be gradually recognised over the next 2-3 years. Plans to launch a further 166 units at Robertson Quay and Serangoon Gardens Way on top of 466-unit Rainforest EC (Jan 12) in the 1H are underway. Within its hotel operations, refurbishment of its hotels in Seoul, NY and Taipei should complete this year while works on the Mayfair hotel is still being planned.

Maintain Hold. We like City Dev for its ability to monetise its landbank through strong residential sales as well as unlocking value from its commercial and hotel portfolio. However, the stock is trading at par with our RNAV of S$11.25, which pegs the value of M&C at current share price. Hence we maintain our Hold call. Our TP of S$10.76 is pegged at a 5% discount to RNAV.

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