Lifted by better hotel operations and one-offs
- 1H22 EPS of 123.5 Scts exceeded expectations due to divestment gains.
- Hotel operations turned around in 1H while residential PBT remained stable.
- Reiterate an Add rating with TP of S$8.97.
1H22 boosted by divestment gains
CIT reported a 23.5% rise in 1H22 revenue to S$1.47bn, mainly from better hotel segment performance. PATMI of S$1.13bn turned around from a loss in the previous year, due to higher hospitality contributions and S$1.4bn worth of one-off gains from the divestment of the Seoul Millennium Hotel and negative goodwill arising from the distribution in specie of CDL Hospitality Trust units in May 2022. Excluding one-offs, PATMI would have amounted to S$110.3m in 1H. CIT proposed a special interim DPS of 12 Scts. In terms of capital management, CIT’s net gearing ratio (after fair value adjustment) was stable qoq at 52% at end-1H22 with strong cash reserves of S$4.1bn.
Singapore projects underpin residential development activities
Property development segment posted a PBT of S$104m, with profit recognition from Singapore and China projects as well as New Zealand property sales. CIT sold 712 residential units in 1H valued at S$1.6bn. Sales were driven by the recently launched 407- unit Piccadilly Grand (82% sold to date). CIT plans to launch Copen Grand Executive Condominium in 4Q22. It has another 1,500 units in its pipeline from 2023F in Singapore. Meanwhile, sales at its Melbourne, Brisbane and New South Wales continued to see a healthy take-up rate. To grow its pipeline, CIT had also entered into a new JV with New Urban Villages to acquire a mixed-use development site in Brisbane. CIT also continues to build scale in the private rental sector (PRS) in UK and Japan with a portfolio of 2,053 completed and under-development units, to build its recurrent income stream.
Rebound in hotel operations in 1H22
Hotel operations achieved a PBT of S$1.325bn, underpinned by improved operating performance and divestment gains. Excluding the latter, this segment recorded a PBT of S$15m compared to a loss in the previous period. Portfolio RevPAR more than doubled to S$113.6 while GOP margin improved 12% pts to 24.7% in 1H22. Occupancy rate increased significantly in Europe and US, driven by a rebound in global leisure travel. Management expects a sequential improvement in 2H22 RevPAR on continued travel demand. In terms of portfolio optimisation, CIT aims to rebalance its hotel portfolio through asset enhancement initiatives, redevelopment and divestment opportunities.
Reiterate Add rating
We lower our FY22-24F EPS by 0.5-20.8% to factor in the exceptional items. Management shared that the collective sale of Tanglin Shopping Centre and Golden Mile Complex could potentially be completed towards year end. We have not included any gains from these sales, pending details of the transactions. Our TP of S$8.97 is based on a 45% discount to RNAV of S$16.30. CIT indicated that it continues to execute on its strategic initiatives, including building its fund management platform and looking at innovation and venture capital. A potential re-rating catalyst is a faster-than-expected recovery in the global hospitality sector. Downside risk: drag from slow macro outlook.
