• 1Q18 earnings below our expectations, at 10% of our FY18e NPAT, mainly due to timing differences in revenue recognition.
• Robust demand for newly launched projects – New Futura and The Tapestry. Expect momentum to continue for 3 more launches from the Group in 2018.
• Strategic expansion of land bank – Pipeline of c.3,000 units to be launched in FY18-19.
• Group RevPAR recovery maintaining pace from FY17, up 3.5% YoY on a like-for-like basis.
• Stronger GBP against major currencies impacted M&C’s total revenue, down 2.7%.
• Maintain ACCUMULATE with unchanged TP of S$13.40 (based on 15% discount to RNAV).

The Positives

+ Robust demand for newly launched projects – New Futura and The Tapestry. Expect momentum to continue for 3 more launches from the Group in 2018. Response to the two launches has been overwhelming with 97% of New Futura Phase 1 and 80% of The Tapestry Phase 1 sold within a few months from launch. Selling prices were also encouraging with The Tapestry’s average selling prices of S$1,310 representing a >20% premium over the median transacted prices of vicinity projects within the last year. We estimate margins for this project to be as high as 40% with the Group’s favourable entry price in the land bid.

+ Strategic expansion of land bank – Total pipeline of c.3,000 units to be launched in FY18-19. The Group won three GLS sites totalling c.S$1.2bn in 1Q18, two of which had close winning margins of 0.7%-4.7% over the next highest bidder. The Group will launch close to half of its pipeline in 2H18 and the rest in 1H19. We expect the Group’s launches in 2H18 to generate healthy buying interest before bulk of the enbloc supply kicks in.

+ Group RevPAR recovery maintaining pace from FY17, up 3.5% YoY on a like-for-like basis. This compares with the 4% YoY increase for FY17. Australasia and Europe (excl. London) are the standout regions. On an overall basis, global RevPAR increased 3.2% in constant currency terms.

The Negatives

– Stronger GBP against major currencies impacted M&C’s total revenue, down 2.7%. This is despite global RevPARs improving on a constant currency basis. We note that the Bloomberg GBP index is up c.4% YoY from 1Q17. Nonetheless, the stronger GBP against the SGD contributed to the higher hotel revenue when consolidated back to the Group reporting currency.

– Slowdown in China sales momentum. Sales momentum at the Group’s major projects in China, Hong Leong City Center (HLCC) in Suzhou and Hongqiao Royal Lake (HRL) is slower in the quarter. To date, c.9% of HLCC (154 units) and 53% of HRL (40 villas) remain unsold. With the shopping mall (80% pre-leased) in HLCC set to commence operation in 2Q18, we expect sales momentum in HLCC to recover, though sales of high-end villas in HRL should remain muted with the existing cooling measures.

Outlook

The outlook for CDL’s residential segment is positive following the successful acquisitions of 3 sites in 1Q18. Strong launches for New Futura Phase 2 (60 units, this week), South Beach Residences (190 units, 3Q18), and West Coast Vale site (c.730 units, 4Q18) are catalysts for the stock. CDL remains one of our favoured proxies to the uptick in the Singapore residential market, following the successful land banking efforts. Global tourism is on a gradual recovery track as evident from the sustained RevPAR recovery for the Group in 1Q18 at 3.5% YoY on a like-for-like basis.

Maintain ACCUMULATE with unchanged TP of S$13.40.

Our RNAV-derived target price represents 1.29x FY18e P/NAV, still below the +1S.D. level of 1.48 since post-GFC.