SINGAPORE (Mar 20): RHB is resuming coverage on City Developments (CDL) with an upgrade to “buy” from “take profit”, and a revised target price of $15 from $11.30 previously on expectations of an impending recovery of the residential segment this year.
In a Tuesday report, analyst Vijay Natarajan highlights the stock as “the best proxy for investors looking to tap into the residential segment’s recovery” considering its status as one of the largest listed residential land bank owners in Singapore.
With an unsold inventory of about 3,859 units, CDL also one of the developers with the highest unsold units, he notes, which could pose further upside in the case of a stronger-than-expected rebound in local residential property prices.
Despite the group’s recent failed privatisation bid for its 65%-owned listed subsidiary, Millennium & Copthorne Hotels (M&C), Natarajan thinks M&C now enjoys brighter prospects in light of the management’s latest plans to allocate capex to M&C’s existing hotels for product improvement and maintenance.
See: City Developments' takeover bid for M&C Hotels fails
Other key catalysts include yield-accretive and sizeable merger and acquisition (M&A) transactions bearing in mind how the group’s net gearing is now at historical low of 9%, which translates to debt headroom of more than $5 billion for acquisitions.
“While it [CDL] has been fairly aggressive in recent land bids, we believe its strong brand positioning and established track record should aid in its projects commanding premium prices,” says Natarajan.
“Our channel checks revealed that its recent preview of The Tapestry drew a strong response with >5,000 people visiting the show units during the launch on 10 Mar. We understand that launch prices are expected to be around $1,300 psf, which translates into a healthy margin of >20%,” he adds.
Looking ahead, the analyst sees fund management to be the next key growth driver for CDL, which he estimates to boost the company’s recurring income fees by about $50 million per annum, making up about 9% of its FY17 net profit.
“CDL targets to achieve assets under management (AUM) of US$5 billion under its fund management platform by 2023. Notably, this AUM target does not include its existing profit participation securities (PPS) and REIT platforms but mainly consist of capital from third parties,” he notes.
As at 10.20am, shares in CDL are trading 1 cent higher at $13.26, or 1.27 times FY18 book value.
