By Foo Sze Ming
Fri, 26 Feb 2010, 08:55:39 SGT

City Developments (CDL) reported its 4Q09 results which came in above our expectations. Operating profit jumped 83.3% YoY to S$269.8m but excluding impairment losses and one-off items, core operating profit would still have increased by 72% to S$281.1m. 4Q09 PATMI increased 76.7% YoY to S$176.7m, beating our estimate by 41.5%. For 1H10, CDL plans to launch a total of 500 residential units from 3 projects. We expect sales to remain strong and have factored in full take-up for the planned launches in our projections. The potential to convert M&C’s hotels and office buildings into residential developments could effectively increase the developable GFA to beyond the 7.1m sq ft from CDL’s direct land bank. We now roll over our RNAV to FY10 and our RNAV estimate and fair value have been raised to S$10.95 per share. With an upside potential of just 5.9%, we maintain our HOLD rating.

Results beat our expectations. City Developments (CDL) reported its 4Q09 results which came in above our expectations. 4Q09 revenue increased 28.6% YoY to S$922.4m, driven by the strong performance from property development. Recovery in hotel operations remains well on track as revenue and pre-tax profit fell by smaller percentages in comparison to the prior three quarters. Operating profit jumped 83.3% YoY to S$269.8m but excluding impairment losses and one-off items, core operating profit would still have increased by 72% to S$281.1m. 4Q09 PATMI increased 76.7% YoY to S$176.7m, beating our estimate by 41.5%. Normal dividend has been raised from 7.5 S-cents in prior years to 8.0 S-cents this year.

500 units planned for launch in 1H10. For 1H10, CDL plans to launch a total of 500 residential units from 3 projects (The Residences at W, Chestnut Avenue site and Pasir Ris Parcel 2 site). Despite recent property measures, we expect sales to remain strong and have factored in full take-up for the planned launches in our projections. The Residences at W could benefit from the recent opening of the Resorts World Sentosa. As construction of this project is already well in progress, CDL can recognize a higher proportion of the sales proceeds and this will have a positive impact on its FY10 earnings.

Growing its developable land from other sources. Earlier, Millennium & Copthorne (M&C), the hotel subsidiary of CDL, said it is planning to convert the Copthorne Orchid Hotel Singapore into a residential development. The project will be owned by M&C but managed by CDL. This partnership highlights the importance of M&C in the strategy of CDL’s property development business. The potential to convert M&C’s hotels into residential developments could effectively increase the developable GFA to beyond the 7.1m sq ft from its direct land bank. In addition, conversion of its office building into residential developments is another area whereby CDL can potentially increase its developable GFA.

Fair value raised to S$10.95; Maintain HOLD. We now roll over our RNAV to FY10 and our RNAV estimate and fair value (which is pegged at parity to RNAV) have been raised to S$10.95 per share (previously S$10.46). The increase is attributable to an 18%-25% increase in our selling price assumptions for its mid-high end projects, bringing them in line with the recent secondary market prices. Valuation is also boosted by the increase in M&C’s share price. With an upside potential of just 5.9%, we maintain our HOLD rating.