FY08 Slightly Below Expectations. City Dev (CDL) reported FY08 net profit of S$581m on revenue of S$2,945m. This was a 20% and 5% drop yoy respectively. The fall in earnings came primarily from lower contribution from 53.5%-owned M&C, due to consolidation impact from the weaker GBP. This was slightly under our below-consensus expectations, but credible given current economic conditions. CDL declared a dividend of 7.5 cts/shr, same as FY07, though the latter did see 22.5 cts/shr of special dividends.
Balance Sheet Stays Strong. CDL’s balance sheet remains healthy, with gearing unchanged yoy at 48%. Interest cover is at 11x (FY07: 10.5x). As CDL states its investment properties, hotels and interest in CDL HT at cost, its earnings is spared the volatility associated with revaluation of investment properties. If CDL adopted a revaluation policy, gearing would be 32%. Management also said a rights issue is not on the cards for now.
Maintain Buy, TP S$5.62. Good earnings visibility, a proven track record and a healthy balance sheet continue to be the key investment themes for CDL. It remains our top big-cap pick, with its diverse landbank able to take advantage of launch opportunities in the mid/mass market should these present themselves. Our RNAV is S$7.51 (from S$7.94) and we take a steeper 25% discount to RNAV (prev 15%) to account for stronger headwinds facing M&C. BUY, TP S$5.62.
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