SINGAPORE (Feb 15): Deutsche Bank says any lack of government action from Budget 2017 on Feb 20 could provide an attractive entry point for City Developments as some of the outperformance of the stock is attributed to expectations of policy easing.
In a Wednesday report, lead analyst Joy Wang says Deutsche’s analysis confirms the market’s perception of the property group as a proxy for the Singapore real-estate market.
Wang notes that Deutsche’s RNAV estimates have largely remained unchanged over the past decade, with limited downside risk. As such, she does not expect a sharp re-rating of its RNAV estimates due to the underlying physical market. However, she highlights that share prices often move ahead of RNAV revisions.
“We raise our target price by 10% to $10.80 and re-iterate our ‘Buy’ recommendation on CDL,” says Wang.
Given Singapore developers’ limited exposure to the residential sector, Wang says CDL is the most liquid proxy to the recovering residential market, in particular the luxury segment.
While the group has yet to announce its launch plan for 2017 and is likely to focus on existing projects, Wang sees successful launches by its peers as a positive catalyst for CDL as well.
In addition, Wang sees redevelopment opportunities within its commercial portfolio and believe this is under-appreciated by the market.
With a declining residential land bank in Singapore, and the push for overseas investments, Millennium & Copthorne (M&C) becomes an important entity, especially given its asset-heavy model, in Wang’s view.
M&C, listed in London, is one of the few global hotel operators that adopt an owner-operator model and owns significant real-estate assets across key cities. It owns and manages 126 assets, of which 65 are owned or leased.
Over the past decade, CDL has increased its stake in M&C from 51% to 65%.
While significant hurdles need to be overcome, Wang believes that the privatisation of M&C could unlock significant value and offer sizeable land bank potential for redevelopment.
Key risks include slower-than-expected recovery in the residential sector in Singapore, significant forex swings, especially in GBP, and inability to acquire landbank.
As at 3.30pm, shares of CDL are down 1 cent at $9.39.
