Turning the corner
? 2H/FY21 EPS of 13.6/9.35 Scts was below expectations at 67%/46% of our FY21F forecast.
? Improving operating performance, boosting balance sheet through asset value unlocking and capital management activities.
? Reiterate Add rating with an unchanged TP of S$8.97.
Improvement in 2H21 performance, proposes DIS of CDLHT units
CIT reported a 38.4% yoy rise in 2H21 revenue to S$1.43bn while PATMI swung back into the black with a S$129.7m profit as all segments reported improvement in performance. The results also included S$117.5m of impairment loss reversal and divestment gains. FY21 PATMI came in at S$97.7m (EPS: 9.3 Scts). CIT proposed a final ordinary DPS of 8 Scts and a special DPS of 1 Scts, bringing FY21 DPS to 12 Scts. In addition, the group also proposed the distribution in specie (DIS) of an 11.7% stake in CDLHT units. Based on a ratio of 0.159 CDLHT units for every 1 CIT share, the DIS is valued at 0.191 Scts/CIT share, assuming CDLHT share price of S$1.20. Post DIS, CIT will retain a smaller 27% stake in the trust and will be able to deconsolidate CDLHT. This will lighten CIT’s balance sheet, resulting in a lower proforma net debt to equity ratio of 0.55x (including revaluations). The deal is subject to shareholders’ approval at an EGM.
Robust development pipeline of 2,350 units in Singapore
The residential development segment posted a PBT of S$244.8m, +11.4% yoy, on revenue of S$1.26bn, mainly coming from progressive billings from ongoing projects. CIT sold S$4.3bn worth of residential properties in FY21, which will be progressively recognised over the next 2-3 years. In addition, it acquired 3 land parcels in Singapore, bringing its potential launch pipeline to 2,350 units. It plans to launch three projects with 1,302 units in FY22F. Within its built to rent segment, the group continues to build scale with a portfolio of 1,734 units of operational and pipeline apartments.
Recovering hotel operations, unlocking value from its assets
Meanwhile, the hotel segment delivered a better showing with higher revenue and lower losses in FY21. The group achieved a 48.6% yoy rise in portfolio RevPAR, with strong uptick in Europe and US, while Singapore and Australasia lagged. Management indicated that it would continue with its efforts to unlock the deep value of the portfolio of hotel assets through asset enhancements and repositioning of its hotels or hastening the pace of its recycling activities, particularly to its REIT vehicle. In addition to a S$499m net gain from the divestment of Millennium Hilton Seoul, recent successful collective sale of Tanglin Shopping Centre should also enable CIT to realise a significant capital gain from this transaction. It will also continue to expand its fund management business via the proposed establishment of a UK commercial SREIT and maintains its target of reaching US$5bn of AUM by 2023.
Reiterate Add rating
We raise our FY22-23F EPS estimates by 25.5-29.2% to factor in the divestment gain from Millennium Hilton Seoul, stronger hotel contributions and income from new Singapore residential landbank. Our RNAV-based TP is maintained at S$8.97. At the current share price, the market has largely factored in the impact of slower hotel operations. A potential re-rating catalyst is a faster-than-expected recovery in the global hospitality sector. Downside risk: drag from slow macro outlook.