City Developments (CDL) reported 2Q09 PATMI of S$140.0m (-15.3% yoy), bringing 1H09 PATMI to S$223.1m, in line with our expectations and representing 50.1% of our full-year forecast. The Group reported a higher revenue of S$787m (+0.8% yoy) primarily due to a higher contribution from the property development segment which continues to be the largest contributor, accounting for 60% of pre-tax profit of S$197.9m. However, this segment’s pre-tax profit declined 19.4% yoy due to the weaker margins for recently-launched projects. Hotel operations, notably in Singapore and Australia, continued to suffer due to the economic slowdown, which resulted in a decline in the Group’s overall RevPAR. Revenue from rental properties increased 12.5% yoy to S$69.2m, mainly due to the locking in of higher rental rates for long-term office rental leases.
Residential property sales to remain key growth driver. CDL continues to benefit from the strong momentum set in developer sales volume in 2Q09. The Arte @ Thomson is nearly sold out at an average selling price (ASP) of S$950psf and Volari, which was launched in early- July, is more than 96% sold at an ASP of S$2,000psf. In the mass market segment, the Group received a good response for its Gale @ Pasir Ris with over 90% sold at an ASP of S$650psf, and for its 724-unit Livia at Pasir Ris. In 2H09, the Group is planning to launch 396 residential units at the former Hong Leong Garden site at West Coast, a 160-unit project at the former Albany site, and 100 units at The Quayside Isle @ Sentosa Cove. We expect strong demand for these projects as well, considering their good locations and the recent upswing in sales momentum, which should help boost CDL’s bottom line in the coming quarters.
Hotel occupancy rates to stabilise with opening of IRs. The hotel segment suffered the most in 1H09 due to the economic downturn with occupancy rates touching 66.7% (-8.7% yoy) in Asia and 59.8% (-6.7% yoy) in the US. Going forward, we expect occupancy rates to improve in Singapore in 2H09 with the expected increase in tourist arrivals due to major events like the APEC conference, F1 Grand Prix and the opening of the integrated resort at Sentosa. Overall, these factors should contribute to revenue in 2H09.
We continue to see good value in CDL and maintain our BUY recommendation with a target price of S$12.70 pegged at a 15% premium to 2009 RNAV of S$11.04.
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