Analysts have remained upbeat on City Developments following the developer’s record FY2022 earnings, lifted by divestments, recovery in its hospitality business, and further boosted by a special dividend.
On Feb 23, CDL reported FY2022 earnings of $1.3 billion, boosted partly by the sale of a hotel in South Korea, its respective stakes in Tanglin Shopping Centre and Golden Mile Complex.
In addition, CDL booked sales of Singapore residential projects including Copen Grand, Piccadilly Grand, CanningHill Piers, Amber Park, Haus on Handy and Irwell Hill Residences.
Its hospitality business, hit hard during the pandemic, has staged a strong recovery, with RevPAR up 91% to $138 up for FY2022 over FY2021.
To mark this record year, which is its 60th anniversary, CDL plans to pay a final and special dividend of 8 cents each. Coming on top of an interim dividend of 12 cents already paid, this brings total payout for FY2022 to 28 cents, equivalent to an annualized yield of 3.6% based on current share price.
The company’s Singapore residential and hospitality sector will help keep up the earnings recovery, says RHB analyst Vijay Natarajan, noting that sales momentum across its Singapore launches remains strong with its projects more than 85% sold.
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He estimates CDL has unbilled sales of $5 billion, which should be progressively recognised upon completion. Furthermore, CDL has one of the largest Singapore residential land bank of more than 2,100 units in pipeline.
CDL will also selectively look at divestments, possibly of its hotels into REIT or third party, as well continue its plans on asset repositioning, says Natarajan, who has kept his “buy” call and target price maintained at $9.75.
“Active efforts are made to boost its fund management business with more overseas acquisitions and divestments likely this year,” says Natarajan.
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CDL is in “advanced” talks with Blackstone to buy a UK mixed development, St Katharine Docks for 400 million pounds, which will beef up its UK portfolio to around 1 billion pounds, for a potential spin off into either a REIT, or a private fund.
Natarajan notes that CDL is also making more bets on the “living sector” with the acquisition of five student accommodation assets in UK in Dec 2022 for 215 million, at cap rates of 5.25-5.5%. This follows the acquisition of private rented sector assets in Japan and Australia, giving a total combined assets under management of $1 billion.
The way Natarajan sees it, these moves are part of its strategy to drive fund management segment towards its US$5 billion AUM target by 2023 and enhance its ROE.
To take into account higher financing costs, analysts have trimmed their earnings projections for FY2023 and FY2024 by varying degrees. Natarajan expects a dip of 1% and 8% for these two years respectively.
CGS-CIMB’s Lock Mun Yee has trimmed hers by 4.5% and 37.2%, to take into account changes in recognition timelines for the residential developments, plus, higher interest costs. She has kept her “add” rating and $8.97 target price.
CDL, from the perspective of the various analysts, is attractive for another reason: its share price is trading at a deep discount to revalued NAV of $19.14 per share, including revaluation of its hotel portfolio, as at Dec 31 2022.
“We continue to see value in CDL, at 42% RNAV discount and P/B of 0.78x,” says Citi analyst Brandon Lee, who has a “buy” call and $10.29 target price.
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DBS Group Research’s Derek Tan and Rachel Tan sees CDL as trading at “distressed valuations” of 0.8x P/NAV (book value at cost) which is below the low seen during the global financial crisis more than a decade ago.
“We believe City Dev is a good long term buy with its plans to proactive efforts to unlock more values, which the market has yet to appreciate, in our view. Moreover, potential activation of share buyback will limit any downside risks,” they say, as they maintained their “buy” call and $10.50 target price, which is based on 35% discount to RNAV.
UOB Kay Hian, meanwhile, has kept its “buy” call but a slightly lowered target price of $9.70 from $9.87, which is tied to a 30% discount to its assessed RNAV of $14.50, in line with CDL’s historical discount to RNVA.
Market concerns over the company’s balance sheet has dissipated given that CDL’s total debt declined 13% in 2022 to $9.7 billion as at end-22, translating into a net gearing of 58%.
CDL shares, as at 12.03pm, was changing hands at $7.77.
