Analysts from RHB Group Research and CGS-CIMB Research are upbeat on an improving outlook for City Developments (CDL) following its 3QFY2021 ended September business update.
In a Nov 22 research report, Natarajan notes that more positive catalysts are emerging for CDL, including strong residential sales across its new launches in Singapore. More than 500 out of the 696 units at Canning Hill Piers sold on the development’s launch day on Nov 20 at an average selling price of $2,900 psf.
Canning Hill Piers is jointly developed by CDL and CapitaLand Development. The mixed-use project comprises residential, retail, hotel and serviced residence components. The healthy launch for Canning Hill Piers follows similarly well-received launches for CDL’s earlier Irwell Hill Residences and Penrose projects.
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Natarajan also notes that CDL’s divestment of Millenium Hilton Seoul should strengthen its balance sheet. IGIS Asset Management Co is close to purchasing the asset for some $1.15 billion. Natarajan anticipates CDL to book gains of over $500 million on the transaction.
“We expect part of the proceeds to be used to fund redevelopments of Fuji Xerox towers and Central mall in Singapore,” Natarajan says.
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Another positive indicator are green shoots emerging for the hospitality sector as global travel restrictions ease. “We expect the hospitality sector to recover to 50% to 70% levels of pre-Covid-19 in 2022 with a near full recovery for the sector anticipated in 2H2023. This should be incrementally positive for CDL’s earnings and also likely to result in a possible uplift to its realisable net asset value (RNAV),” Natarajan explains.
The analyst reiterates his “buy” call for CDL, noting that valuations are attractive at 20% and 54% discounts to book value and RNAV respectively.
He has upped his target price for CDL from $8.50 to $9, factoring in an environmental, social and governance (ESG) premium of 6%. Based on RHB’s in-house ESG rating methodology, CDL scored highest among Singapore developers in terms of environmental and social efforts, though it ranked lower on corporate governance.
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Meanwhile, CGS-CIMB Research analyst Lock Mun Yee has kept her “add” rating for CDL with an unchanged target price of $8.97.
Following CDL’s 3QFY2021 ended September business update, the analyst notes the company’s “relatively optimistic outlook” as borders gradually reopen.
Similar to Natarajan, Lock highlights the stronger residential sales booked by CDL for the first nine months of 2021, while occupancies remained high for its investment properties.
CDL’s Singapore office and retail portfolio occupancy stood at 91.5% and 93.3% respectively as of end-3Q2021. “Demand for its office space continues to be supported by wealth management, family office and technology/fintech companies,” notes Lock.
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Hotel performance improved q-o-q with revenue per average room surging 117.1% y-o-y for the 3QFY2021. The outlook is expected to strengthen as travel restrictions ease further.
CDL shares closed 1 cent or 0.14% higher at $7.18 on Nov 22.
Photo: Samuel Isaac Chua/The Edge Singapore
