Could KLB bring him more ME partners???

City Developments Ltd (CDL) looks headed for record profits for full-year 2007 after achieving net earnings of $169.5 million for the third quarter ended Sept 30, and $490 million for the first nine months. Third-quarter earnings were up 32.1 per cent and nine-month earnings 128.5 per cent from the corresponding periods last year. Market watchers reckon that for the full-year, the property and hotel group should be able to surpass its best showing of over $500 million net earnings about a decade ago. On the group's prospects, CDL said yesterday: 'With the outstanding sales achievements over the past few years, this has enabled the group to lock in its profits, placing it in a rewarding position to perform well in the next few years as profit will continue to be recognised progressively.' CDL executive chairman Kwek Leng Beng said that 'continued capital appreciation in the next few years is likely and the prospects for the property sector continue to be good'.

 

KIM ENG - Spreading Its Wings

♦ Strong earnings persist in 3Q07

City Developments (CDL) posted $169.5m in net profit for 3Q07, up 32.1% Y/Y. This despite a $150.9m gain recognised in 3Q06 from the sale of four hotels to CDLHT. This brings YTD net profit to $490m, in line with our expectations. On a sequential basis, net profit actually fell 12.8% due to a write-back of tax provisions in 2Q07, resulting in a tax credit of $13.2m as opposed to a tax charge of $44m in 3Q07. Revenue grew 19.7% Y/Y and 2.7% Q/Q to $791.2m.

♦ Property development the star performer

CDL?s property development segment wasthe largest contributor in 3Q07, accounting for 60% of group PBT of $245.3m. This wasdespite the fact that profits from One Shenton, The Solitaire and Cliveden at Grange werenot yet recognised. Its hotel segment, run by subsidiary M&C, also continues to do well; 3Q07 PATMI grew 7.3% Y/Y to £27.8m.

♦ Reserving choice Cliveden units for itself

In an unprecedented move, CDL has tied up with the US-based Wachovia Group to purchase two towers of its own development, Cliveden at Grange. The towers, deemed the best in the development, comprise 44 of the total 110 units. CDL has a 40% stake in the joint venture and will pay $432.4m for the towers, averaging $3,750 psf. The rationale behind the move is that CDL and its partner see potential capital appreciation and possible rental income.

♦ From South Korea to Russia

Subsequent to the tie-up in South Korea with DC Chemical, CDL also announced that it is entering the Russian market by taking a 50% stake in Soft Proekt, which owns the Iris Congress Hotel and a 9-storey serviced apartment building in Moscow. The hotel is likely to be repositioned as a Copthorne Hotel. The JValso plans to build a mixed-development adjacent to the hotel, comprising business and conference facilities, F&B areas and a car park. No further details were given about the expected GFA of the development.

♦ Of deep value

Despite the current cautious outlook in the property market following the withdrawal of the Deferred Payment Scheme, we remain positive aboutCDL?s residential projects. Meanwhile, CDL has also accelerated its overseas expansion plans. Reiterate BUY at $19.20, based on 20% premium to RNAV.