UOB Kay Hian analyst Adrian Loh has kept a “buy” rating on City Developments Limited (CDL) with a target price of $9.20.
On May 24, CDL reported a resilient operating performance in 1QFY2022 ended March supported by healthy hospitality occupancy rates, with strong room rate and revenue per available room (RevPAR) metrics in most of its geographies with the exception of New Zealand.
London and Europe were notably robust with RevPAR spiking 10x and 7x respectively, as expected by Loh. “We expect 1HFY2022 and even 3QFY2022 numbers to be similarly strong as the summer holiday season kicks in from June onwards, and especially looking at recent outlook statements from various airlines regarding the summer high season,” writes the analyst.
As movement restrictions in Singapore eased in 1QFY2022, offices in general saw a gradual increase with workers exiting the “work from home” mode.
In 1QFY2022, CDL reported that its Singapore office portfolio had a healthy occupancy rate of 93% and higher than market average of 88%. A positive effect of this has been retail sales which has reached close to pre-Covid-19 levels, resulting in CDL’s retail occupancy of 95% as compared to the market average of 92%.
However, CDL’s Singapore residential segment saw a 41% y-o-y fall in units sold due to uncertainty after the December 2021 property cooling measures.
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“We do not view this however as a major cause for concern given that CDL’s launches in 2022 are back-end loaded,” says Loh. “In addition, our channel checks with the construction industry point to a recovery, and the risk of delays has materially reduced.”
For China, the analyst anticipates a likely drag in 1HFY2022 due to the significant Covid-19 measures currently implemented by the government. “Although office occupancy in Shanghai remains relatively stable, retail in Suzhou has been significantly impacted and residential sales and construction work in these two cities as well as in Shenzhen have been negatively affected,” Loh observes.
On the whole, CDL’s outlook remains reasonably strong for the rest of 2022 to the analyst given its back-end loaded residential launches in Singapore as well as continued recovery in its hospitality segment.
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In his report, Loh has upped his earnings estimates after factoring in the sales of Piccadilly Grand, as well as the slightly higher average selling prices for Canninghill Piers.
Looking ahead, the analyst adds that there will be further earnings upgrades during the group’s 1HFY2022 results, in line with the capital gains that will come from the divestment of Tanglin Shopping Centre and the collective sale of Golden Mile Complex.
The completion of the divestment of the Millennium Hilton Seoul will also see a disposal gain of $526.2 million for the group.
“The market will be looking for guidance as to whether CDL intends to distribute some of these proceeds in the form of a special dividend,” Loh writes.
As at 10.43am, shares in CDL are trading flat at $8.26 at an FY2022 P/B ratio of 0.9x and dividend yield of 1.1%.
Photo: Samuel Isaac Chua
