• Maintain BUY and SGD9.75 TP, 18% upside and c.2% yield. City Developments posted a record 1H profit, boosted by one-off items, while operating PATMI was broadly in line. Management’s strategy of extracting value from its non-core assets is beginning to bear fruit, with positive impact to NAV and bottomline. Outlook is positive for 2H as the company has healthy unbilled residential sales, and a strong recovery is seen for its hotel and investment portfolio. Valuation is cheap, in our view, with the stock trading at >50% discount to its RNAV.

• Record 1H net profit of SGD1.1bn, boosted by divestment gains from the sale of Millennium Hotel Seoul (SGD526m) and accounting deconsolidation (SGD492.4m) of CDL Hospitality Trusts (CDLHT). Excluding the above, 1H operating PATMI stood at SGD110.3m (vs a loss of SGD32m in 1H21). We expect operating PATMI to double in 2H on the back of higher contributions from residential segment and strong recovery in hotel operations. CDL is also expected to recognise further gains to the tune of c.SGD250m from the sale of its stakes in Tanglin Shopping centre and Golden Mile Complex. It announced an interim dividend of 12 cents (vs 3 cents previously).

• Hotel segment staging a strong recovery. Hotel operations reversed into black in 1H with all markets registering positive EBITDA. A stronger performance is expected in 2H. Global RevPAR rose 110% YoY (driven by room rates, +53%) which returned to pre-COVID-19 levels on the back of a strong pent-up leisure travel demand. Post strategic review of its Millennium & Copthorne portfolio, CDL categorized its assets into: i) Core assets with focus on operational efficiency; ii) assets earmarked for asset enhancements; iii) redevelopments; and iv) divestments. We expect more value unlocking moves ahead from its hotel portfolio.

• Good earnings visibility from healthy unbilled residential sales. Take- up rates at CDL’s Singapore residential launches have been strong with only c.10% of its launched inventory remaining unsold. We estimate unbilled residential sales (with JV projects) of c.SGD5bn to provide strong earnings visibility for the next two years. It also has a launch pipeline of >2,000 units in Singapore for which we continue to expect resilient demand.

• Growing in scale on living sector portfolio with the acquisition of three newly-built Private Rented Sector (PRS) projects in Japan, a freehold site in Melbourne (to be developed into 240 units PRS), and its maiden first Purpose-Built Student Accommodation (PBSA) in the UK. These assets are expected to form a pipeline for CDLHT and help in achieving its 2023 fund management target of SGD5bn.

• No changes to core PATMI. ESG score of 3.3 (out of 4.0), based on our in-house methodology. As the ESG score is three notches above our country median, we applied a 6% premium.

Source: RHB Research - 12 Aug 2022