Analysts are all keeping their “buy” calls on City Developments Limited C09 (CDL) after the group reported earnings of $317.3 million for the FY2023 ended Dec 31, 2023, 75.3% lower than its earnings of $1.29 billion in the FY2022.
The plunge in CDL’s earnings were attributed to the higher financing costs in FY2023 and the absence of the substantial divestment gains reported in FY2022. In December 2021, CDL announced that it would divest Millennium Hilton Seoul and its adjoining land for $1.26 billion, which was at a “significant premium” to its book value.
The OCBC Investment Research (OIR) team is remaining positive on CDL after the group’s FY2023 core patmi of $188.6 million stood at 98% of its forecast.
“CDL has shown clear signs of recovery from the pandemic across its various business operations, but management pushed out its target of achieving US$5 billion ($6.66 billion) in assets under management (AUM) from FY2023 to FY2024 due largely to lacklustre capital market conditions,” the team writes in its March 1 report.
In addition, the group has been proactive in reconstituting its portfolio to unlock value for shareholders, such as the divestment of assets at a premium to their book values and redeveloping some of its older commercial properties in Singapore.
That said, despite the positives, the team is less buoyant on CDL’s prospects with the softer global economic outlook and risks of policy tightening measures being potential dampeners to investor sentiment.
See also: CDL could get partners for $1 billion divestment, says JP Morgan
Following CDL’s announcement of targeting $1 billion in divestments in FY2024 to reduce its net gearing ratio, the OIR team has cut its core patmi forecast for the FY2024 by 12%. As a result, its fair value estimate – or target price – has been lowered to $7.02 from $7.20.
In environmental, social and governance (ESG) terms, however, OIR acknowledges that CDL is ahead of its peers when it comes to adopting practices to manage ESG opportunities and risks in its businesses. About 85% of CDL’s portfolio as at FY2021 was certified to green building standards, which is “well above” the industry’s standard of 31% as at May 2022.
PhillipCapital analyst Darren Chan has also lowered his target price to $6.87 from $8.22 after CDL’s FY2023 results missed his estimates by 15% due to the higher-than-expected finance costs.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
That said, he has upped his FY2024 patmi estimate by 15% after including in higher contributions from the group’s hotel operations.
“We view CDL as a proxy for the Singapore residential market and hospitality recovery. Asset monetisation, unlocking value through asset enhancement initiatives (AEIs) and redevelopments, establishing a fund management franchise, and the continuous recovery in the hospitality portfolio are potential catalysts for CDL, which could help narrow the discount between CDL’s share price and revalued net asset value (RNAV),” Chan writes.
As at his report dated March 5, CDL’s shares were trading at $5.62 each or at an “attractive” 55% discount to his RNAV per share of $12.50.
RHB Bank Singapore analyst Vijay Natarajan has lowered his target price to $8 from $8.20 as CDL’s earnings missed his estimates on lower margins and higher interest costs.
“FY2023 was an active year for acquisitions, particularly in overseas markets, but CDL expects more divestments in FY2024 (target: $1 billion). Singapore remains a bright spot – both on the residential and investment property fronts – while the hospitality portfolio recovery momentum is set to continue at a moderate pace,” he notes in his Feb 29 report.
“[CDL’s] share price has under-performed, but more divestments and recycling to fund platforms could act as re-rating catalysts,” he adds.
In addition to his lowered target price, Natarajan has also cut his patmi estimates for the FY2024 to FY2025 after adjusting his margin and interest cost assumptions.
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DBS Group Research analysts Rachel Tan and Derek Tan are the most bullish on CDL with an unchanged target price of $10.50.
In their Feb 29 report, the analysts note that the group is likely to continue riding on Singapore’s strong hospitality tailwinds after Covid-19.
“We believe that the hospitality segment will continue to grow (albeit with some moderation in growth rates) as Singapore continues to benefit from international concerts and MICE events,” they write. MICE refers to meetings, incentives, conferences, and exhibitions.
As at the analysts’ report, CDL’s shares were trading at $5.78, or at an “attractive” valuation of 0.6 times P/NAV (book value at cost) and below the low that was last seen during the global financial crisis (GFC).
To this end, the DBS analysts believe that CDL is a “good long term buy” due to its proactive efforts to unlock more value. The latter is a “measure the market has yet to appreciate, in our view”.
“Moreover, potential activation of share buyback will limit any downside risks,” they add.
The analysts’ target price is based on a 35% discount-to-RNAV which implies a 1 times P/NAV, slightly above -0.5 standard deviation (s.d.) of its historical range.
“Our target price upsides are mainly from a potential re-rating from the realization of its RNAV with the completion of development assets and potential asset recycling,” they write.
As at 1.09pm, shares in CDL are trading 8 cents higher or 1.41% up at $5.76.
