SINGAPORE (May 17): CGS-CIMB Research and Jefferies are maintaining their “buy” calls on City Developments Limited (CDL) with the respective price targets of $10.66 and $8.68, while RHB Research is keeping its “neutral” rating on the stock with a target price of $9.20.
This comes post the release of CDL’s 1Q19 earnings, which more than doubled to $199.6 million despite lower revenue compared to a year ago, as well as recent news of the group acquiring a 24% stake in Chinese developer Sincere Property Group.
In a Wednesday report, CGS-CIMB analyst Lock Mun Yee says she continues to see CDL as a high-conviction “add” despite reducing FY19-21F earnings per share (EPS) by 5.3-10.4% on lower-than-expected hotel contributions.
Commenting on the latest set of 1Q results, the analyst notes steady development in profit on higher margins, as well as growth in rental income from new acquisitions such as Aldgate House.
The group is further poised to build scale and accelerate its growth in the China real estate market considering its latest investment in Sincere, she adds.
“Post-acquisition, China will account for 15% of CDL’s portfolio allocation. Sincere is ranked among the top 100 developers in China with a development land bank of 12.6m sq m across 20 cities and a substantial portfolio of investment properties, with activities spanning across residential, commercial, business parks, retail and serviced residences,” notes Lock.
Jefferies analyst Krishna Guha, however, says he remains neutral to cautious on the deal due to concerns over the deal execution and policy cycle, limited disclosures, and how capital will be allocated between development and recurring income platforms.
The analyst also views CDL’s latest 1Q results as a “mixed quarter with small growth in property development more than offset by weak hotels”.
Regardless, Guha has tweaked up estimates to factor in the group’s 1Q divestment gains, and notes that the stock trades at 0.8 times P/B versus a mean of 1.3 times.
Similarly, RHB analyst Vijay Natarajan says he is neutral on the acquisition deal as he believes the positives are balanced out by currently-tight market regulations as well as escalating trade tensions – which should, in turn, limit CDL’s share price performance in the near term.
He nonetheless sees the strategic investment in Sincere as an “opportunistic move” and a long-term positive with the potential for CDL to inject Sincere’s properties into a REIT or private fund to grow its fund management platform.
“Moving ahead, Sincere should be the platform for CDL to expand its China operations. We see the acquisition as an opportunity to deepen its presence in China, amid tighter financing conditions faced by local developers,” concludes Natarajan.
As at 4pm, shares in CDL are trading 1.05% higher at $8.63 or 0.79 times Dec-19F book value based on CGS-CIMB estimates.
