RHB Group Research analyst Vijay Natarajan has kept his “buy” call on City Developments Limited (CDL) as he sees the group being on a recovery path.
Year-to-date (Y-t-d-), CDL’s share price has rebounded some 20%, outperforming the benchmark Straits Times Index’s (STI) 7% as it emerges stronger post-pandemic.
In his report dated April 13, Natarajan has also upped his target price estimate to $9.75 from $9.25 as he sees the “stars aligning” for CDL from a combination of resilient residential sales in Singapore, a strong recovery in its hospitality and commercial portfolios, as well as a growing fund management business.
CDL has a slew of upcoming residential launches, to which Natarajan is expecting to see good responses. The upcoming launches include the 407-unit Piccadilly Grand and the 639-unit Tengah Walk executive condominium (EC).
“Despite the rising rates environment, residential demand remains well supported by strong local demand and limited inventory levels. Sales across its launched projects have been healthy, with over 90% sold resulting in a record sales value of $4.3 billion in FY2021 and estimated unbilled sales of over $3 billion, thereby presenting good earnings visibility over the next two years,” the analyst writes.
CDL’s hospitality portfolio under its Millennium & Copthorne (M&C) business, which accounts for 30% of its revised net asset value (RNAV), turned profitable in the 2HFY2021 ended December.
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M&C is expected to mark a stronger recovery in FY2022 with earlier-than-expected border openings across its key markets – the UK, Singapore and the US.
“We expect its hotel portfolio revenue per average room (RevPAR), which stood at half of pre-Covid-19 levels last year, to rebound to 70-80% by end-2022, with a full recovery by end-2023,” says Natarajan.
In addition, CDL’s key commercial assets in Singapore, Republic Plaza, City Square and South Beach, are expected to see a boost in demand from the recent loosening of Covid-19 restrictions.
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Its UK office portfolio is also likely to remain resilient with the possibility of it spinning into a REIT later this year, says the analyst.
CDL has also recently undergone a series of strategic divestments including the Millennium Hilton Seoul and its 34.6% stake in Tanglin Shopping Centre. The hotel was sold for a “significant” post tax gain of $529 million while its stake in Tanglin Shopping Centre netted the group estimated gains of $150 million to $200 million.
The group also lowered its stake in CDL Hospitality Trusts (CDL HT) via dividend in specie, which will result in accounting deconsolidation and improvement in net gearing to 55% from 61% (including fair value of investment properties).
“These moves enhance its debt headroom for its ongoing redevelopments and replenish its Singapore residential landbank,” the analyst writes.
On the back of these, Natarajan has raised his RNAV estimates by 5%, factoring in a higher value for CDL’s hospitality portfolio and divestment gains, resulting in a higher target price.
Shares in CDL closed 4 cents higher or 0.49% up at $8.24.
