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Investor CentralCity Developments Limited - How long will its hotels be in trouble?
19/3/2013 – The government's seventh attempt to cool speculation in Singapore's private property market are having an impact, going by City Developments' forecasts.
It has announced it will focus on overseas operations as particularly high-end residential properties come under pressure.
The company just announced earnings for Q4 FY12:
Revenue: +22.8% to S$886.4 mln
Profit: +52.8% to S$249.4 mln
Cash flow from operations: (S$49.1 mln) vs S$108.4 mln
Dividend: 13 cents per share vs 18 cents per share
Revenue and profit rose due to higher residential sales and recognition.
Property development continued to generate half of pre-tax profit, as previously launched projects are booked.
City Developments’ hotel operations under Millennium & Copthorne
Hotels plc (M&C) accounted for 26% of its profit before tax (PBT).
Brokers also expect the latest property curbs to bite.
OCBC Research maintained its HOLD rating with a fair value of S$11.17.
But DBS Vickers Research upgraded the stock to HOLD with a target price of S$12.23 and CIMB Research also upgraded its call to NEUTRAL with a target price of S$11.25.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. How does it plan to manage the headwinds from its hotel business?
Excluding one-off gains, Millennium & Copthorne's FY12 pre-tax profit declined by 8% YoY, mainly due to the closure of Grand Hyatt Taipei for refurbishment works.
But growth in revenue per available room (RevPAR) tapered off.
Maybank Research highlights that the operating environment remains challenging.
In fact, RevPAR for the first six weeks of 2013 declined in Singapore by 10.2%, London by 9.6% and New York by 1.6%.
2. Will contribution from overseas operation increase this year?
The bulk of its unsold inventory is in high-end projects, a market that management is bearish on currently.
CIMB Research says there are plans to repackage these assets but management was elusive on details.
But it did clarify plans for its overseas operations, particularly hotels and China.
Iskandar was also mentioned as a potential target, though City Developments believes it is early days and would rather wait for the General Election in Malaysia to be over before making a decision.
Overseas operations now make up 27% of its profit before tax.
On Singapore residential property, management is less optimistic, expecting prices to correct after the latest cooling measures in Jan 2013.
We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.
Sofar, we have not had a reply (which is why you are seeing this message).
Sources & further information
Statutory disclosure
Press release
Presentation materials
CIMB Research Report
OCBC Research Report
DBS Vickers Research Report
Maybank Research Report
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