Analysts from CGS-CIMB Research, DBS Group Research, OCBC Investment Research, RHB Research, and UOB Kay Hian are maintaining their “add” or “buy” calls on City Developments Limited (CDL) despite its less-than-stellar 1H20 earnings results.
On August 13, CDL posted a 99.1% plunge y-o-y in its earnings to $3.1 million for the 1H20 ended June due to the negative impact the Covid-19 pandemic had on its hotel operations segment. The drag on earnings was also partly attributable to the lower joint venture contributions with after-tax losses from its 51.01% stake in Sincere Group, as well as $33.9 million of impairment losses for eight hotels in Europe, the UK, and the US.
See: CityDev 1H20 earnings plunge 99.1% to $3.1 mil
CGS-CIMB analyst Lock Mun Yee says the group’s 1H20 earnings per share (EPS) came in below at 0.8% of her FY20F forecast, dragged by the losses in its hotel segment.
Accordingly, she has slashed her EPS forecast for the rest of FY20 by 45.8%, and reduced EPS for FY21F and FY22F by 21.2% and 11.4% respectively.
Lock expects recovery in the group’s hotel performance to remain “muted” despite signs of some pick-up. CDL’s management has also guided that it expects losses to continue through to the end of the FY, and would continue implementing cost-cutting strategies.
Lock has reduced her target price on the counter as well to $10.10, from $10.13 previously, at a 45% discount to revalued net asset value (RNAV). She has also reduced CDL’s RNAV to $18.37 after factoring in a lower target price for CDL Hospitality Trusts.
“A potential re-rating catalyst is a faster-than-expected recovery in the global hospitality sector. Downside risks: drag from slow macro outlook on residential sector,” she says.
DBS analysts Rachel Tan and Derek Tan are positive on CDL due to the “potential silver lining” should the government extend additional support to developers.
Both analysts have cut their FY20F and FY21F earnings estimates for the group by 2-31% post results to reflect 1H20’s lower earnings.
Rachel and Derek have also maintained their target price of $10.50, with a positive outlook on the counter.
“Currently trading at 0.7x P/NAV, close to -1.5 standard deviation (SD) of its 5-year mean, we believe valuations are too cheap to ignore as City Dev is well positioned to leverage on the recovery post-Covid,” they add.
On the back of the results release, OCBC’s research team has lowered its FY20F profit after tax and minority interests (PATMI) and distribution per share (DPS) forecasts by 21.8% and 40% to $243.9 million and 12 cents per share respectively.
While the team has also cut their fare value estimate to $10.64 from $10.74, it feels CDL is still trading “at an attractive P/RNAV of 0.52x on our reduced RNAV estimate, based on its closing price on Aug 13, 2020”.
“We also factor in the reduced unaudited NAV of Sincere Property Group (Sincere) from RMB16.5b to RMB15.4b (as at 30 Apr 2020) and apply a lower P/B target peg of 0.6x on Sincere (previously 0.7x) in our RNAV valuation model,” it adds.
RHB Research analyst Vijay Natarajan says he is “positive” on CDL’s plans to redevelop Fuji Xerox Towers and Central Mall, two of its older assets in Singapore and divest its non-core hotels and China assets.
“In our view, near-term headwinds have been fully priced in, with the stock trading at -2SD levels in terms of P/BV and P/RNAV,” he says.
For FY20F-21F, Natarajan has cut CDL’s net profits by 55% and 3% respectively to factor in “protracted weakness” in the hospitality portfolio, deferment in development property recognition and rental rebates.
“We have also included Sincere Property to our RNAV computation at acquisition cost,” he adds.
Following CDL’s “poor results”, UOB Kay Hian analysts Adrian Loh and Loke Peihao have reduced their target price for the stock to $9.20 from $9.50 previously.
On that, they have also slashed their net profit forecasts for FY20 by 94.2% to “further reflect” the negative profit margins from CDL’s hotel properties, and slower sell-through of its residential properties in Singapore.
Loh and Loke have further reduced their net profit estimates for FY21 and FY22 by 36.0% and 19.8% respectively to include “slower-than-expected resumption of business and leisure travel which will impact its hospitality business”.
“We have also cut our DPS estimates as we do not expect any special dividends,” they add.
As at 11.12am, shares in CDL are trading 17 cents lower, or 2.1% down, at $8.10.
