Daiwa says City Developments’ Sincere deal offers better platform for China expansion

Hong Kong money-changer with yuan symbol signHong Kong money-changer with yuan symbol sign

City Developments’ deal to invest in China property developer Sincere Property Group offers a “better platform” to expand on the mainland for a “more ambitious yet measured” strategy, Daiwa said in a note last week.

The Singapore property developer announced last week that it would invest a total 5.5 billion yuan, or around S$1.1 billion, in Sincere Property in a loan-and-equity deal.

“Regardless of the limited details provided so far to properly value this investment, we believe the deal appears to have strategic significance in providing a bigger and faster platform for City Developments to expand in China through a diversified local developer that shares the same DNA (attention to detail, focus on quality and measured growth) as City Developments,” Daiwa said.

“The close relationship (since 2010) and mutual respect between City Development’s CEO, Sherman Kwek, and Sincere’s founder and chairman, Wu Xu, was evident at the briefing, in our view,” the note added.

The deal will increase City Development’s asset exposure to China to 15 percent from 9 percent, and exposure is likely to rise even further through Sincere’s fast growth, Daiwa said.

In addition, City Developments reported last week its first quarter net profit jumped 133.8 percent on-year to S$199.56 million on strong profit margins for development projects and a gain from the divestment of Manulife Centre.

Daiwa said there were “no surprises” in the results.

“We reiterate our Buy rating and see deep value in the stock and believe the company has executed almost impeccably in the Singapore residential market (Boulevard 88 and Amber Park launches),” Daiwa said. “Additionally, the company has also clinched several strategic acquisitions year-to-date that could unlock longer-term value.”

But it trimmed its target price on the stock to S$11.90 from S$12.25 after incorporating the first quarter results and announced acquisitions.

The stock ended Friday down 0.23 percent at S$8.61.

 

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