SINGAPORE (Nov 10): DBS is maintaining its “buy” call on City Developments with target price of $14.03 mainly on re-pegging the valuation on Millennium & Copthorne to NAV.
CityDev has announced a possible cash offer to acquire all the outstanding Millennium & Copthorne Hotels shares for 552.5 pence per share in cash plus special dividend.
With the Singapore property market in the nascent stages of an upturn, DBS sees CityDev as a key proxy to upward trends in the Singapore residential market and has historically traded up to 1.2x-1.3x P/NAV, which the research house’s target price implies.
In a Friday report, analyst Rachel Tan says DBS’ target price is among the highest in the street.
“We believe that catalysts abound for the group after its successful land-banking activities. With a robust pipeline of four residential projects for launch in 2018/1Q19, a better than projected sell-through rates at these new launches will be a re-rating price catalyst,” says Tan. In addition, strong sales momentum at its existing unsold inventories in Singapore and China offer strong earnings visibility in the medium term.
Meanwhile, shares in M&C last traded at 610 pence, above the offer price. This is a potential hurdle to a marriage of this deal, says Tan, who warns that inability to complete the privatisation exercise could limit potential upside to RNAV.
Shares in CityDev are down 7 cents at $12.07 or 1.1 times FY18 book value.
