City Developments (CDL) - Uncertainty over green iconic project

Based on the URA’s flash estimates, private residential property prices in Singapore fell by 13.8% in 1Q09. More specifically, prices of non-landed private property in the Core Central, Rest of Central and Outside Central regions dived by 15.2%, 17.2% and 7.5%, respectively. With a landbank of about 5m sq ft of residential GFA, this is likely to affect CDL’s launch prices for its new projects.

We believe that CDL’s large landbank has projects suited for the entire spectrum of homebuyers. Over the past week, about 60% of the units previewed at the Arte (a mid-end development) have been taken up, at an ASP of $880 psf. This price is, however, 7.4% lower than our expected ASP of $950 psf. Judging from recent demand patterns, there seems to be a greater latent demand for mass market projects; thus, CDL may continue to drive sales at Livia.

CDL has deferred the South Beach development indefinitely, citing high construction costs as the reason. Based on today’s capital values, South Beach development would barely break even at our estimated cost of $2.6b. We believe that CDL will defer its development until general economic conditions improve. However, as capital values are expected to fall further, CDL may potentially have to take an impairment charge of about $130m in FY10.

We have lowered our ASP despite the rebound in share price assumptions for all its Thomson Road projects to $900 psf, as well as further adjusted our launch schedule assumption for its high-end projects to 2011 and beyond. Our FY09 and 10 forecasts are reduced by 9.1% and 12.1%, respectively. While we have trimmed our target price to $7.02, we think that there is still value to be mined despite concerns regarding South Beach. Maintain BUY.

Sponsored Links

Related Posts by Categories