- BUY, new SGD8.80 TP from SGD9.75, 27% upside. City Development’s share price has corrected 16% YTD, weighed down by cooling measures. Despite a moderated residential outlook, we believe the impact to CDL’s bottomline is manageable, as its inventory is substantially sold and the remaining landbank is mostly in mass/mid-tier segments. The global hospitality portfolio (c.one-third of RNAV) should continue to see a good recovery. Key catalysts: i) The unlocking of portfolio value via an asset spin- off into funds or REITs, ii) divestments, and iii) possible M&A.
- Cooling measures impact manageable on residential portfolio. CDL has sold the bulk (c.88%) of its launched inventory in Singapore as of April. We estimate c.SGD5bn of unbilled residential sales that can be recognised over the next three years. It currently has four projects with c.1,500 units (c.SGD2bn GDV) in the launch pipeline (Figure 2) with an estimated c.80% unsold units in md-tier and mass market segments that are less impacted by the latest government cooling measures aimed mainly at foreigners and investors. While we expect a slight moderation in new launch prices post measures, margins are unlikely to see significant compressions and remain in an 8-20% range. In light of the recent measures CDL said it will defer its upcoming new launch – Newport Residences (its only high-end project in its pipeline) – while the remaining projects are likely to go ahead as per schedule. Overall, we revise our FY23F-24F earnings lower by 9% and 8%, mainly by deferring launch recognition and slightly slower sales.
- Hospitality segment set to stay buoyant. CDL’s listed REIT subsidiary CDL Hospitality Trusts (CDREIT SP, NEUTRAL, TP: SGD1.25) posted a strong set of 1Q numbers with net property income up 35% YoY, boosted by strong revenue/available room or RevPAR recovery in Singapore, Australia, and Europe. We expect a similar trading performance for its Millennium & Copthorne operations and are positive on 2023’s outlook.
- Slowly progressing on its fund management ambitions. Post the recent acquisitions of St Katherine Docks (UK) and Sofitel Brisbane, the fund management’s asset under management stands at c.USD4bn – CDL has an end-2023 target of USD5bn. The fund management’s business growth has been one of its key strategies to improve its weak core ROE.
- ESG score by a notch to 3.3 (out of 4.0). As there is now greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note Envisioning a Better Future. As CDL’s score is three notches above the country median, we apply a 6% ESG premium to reach our new SGD8.80 TP. Keep BUY.
Source: RHB Research - 19 May 2023
