PhillipCapital analyst Terence Chua has downgraded City Developments Limited (CDL) to “accumulate” from “buy” previously even as the group’s patmi of $1.13 billion for the 1HFY2022 ended June exceeded Chua’s FY2022 estimates at 107%.
CDL’s half-year patmi, which was a reversal from the previous year’s $32.1 million loss, included divestment gains of $526.2 million from Millennium Hilton Seoul and $94 million gains from deconsolidation of CDLHT. Excluding these one-off gains, CDL’s performance would still have been in line with Chua’s estimates, the analyst says.
In his report dated Aug 23, Chua has also lowered his revised net asset value (RNAV)-derived target price estimate to $8.86 from $9.19. The lower target price reflects the higher borrowing costs that are factored in Chua’s FY2022 and FY2023 estimates. CDL’s slower profit recognition for its residential properties is also a contributor to the lower target price, he says.
That said, the analyst sees CDL as a “proxy” for the Singapore residential market and hospitality recovery. “CDL is trading at an attractive 40% discount to our RNAV per share of $13.64,” he writes.
The analyst adds that he sees several potential catalysts for the group, which includes the monetisation of its assets, unlocking value through asset enhancement initiatives (AEIs) and redevelopments, as well as a faster-than-expected recovery of CDL’s hospitality portfolio. All of the above-mentioned factors could help narrow the discount between CDL’s share price and RNAV.
CDL, which declared a special dividend of 12 cents in the 1HFY2022, compared to the previous year’s three-cent dividend and six cents before Covid-19, came as a surprise to the analyst.
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On this, he has revised his dividend payout estimate for the FY2022 to 24 cents on the back of CDL’s management’s “optimistic outlook” for the rest of the year.
On CDL’s strategic review of its global hospitality portfolio, Chua sees the restructuring plans – which may include asset divestments, portfolio optimisation as well as a rebranding of its hotels – as a means to improve the group’s earnings and drive upside to its NAV.
As at 2.55pm, shares in CDL are trading 5 cents higher or 0.61% up at $8.23.
