• Stay BUY and SGD9.75 TP, 18% upside and c.2% FY23F yield. 3Q business updates were in line and showed continued pickup across all three market segments. City Development’s strategy of deleveraging its non-core assets over last two years has placed it in a relatively better balance sheet position amid rising interest rates. Key earnings drivers continue to be its healthy unbilled sales from Singapore residential projects and hospitality segment recovery. Despite YTD share price outperformance (+22%), the stock remains undervalued at c.50% discount to RNAV.

• Development portfolio well positioned despite rising rates and cooling measures. Residential sales in Singapore projects remained strong with Copen Grand executive condominium (EC) (50% stake) fully sold out since its launch in October, adding an estimated c.SGD0.5bn in presales revenue. With this, we estimate CIT has unbilled residential sales revenue of c.SGD5bn that can be recognised over the next three years. CDL has also recently won another EC project at Bukit Batok West Avenue 5 in September, which should see similar strong demand considering the EC segment is relatively less impacted by cooling measures and interest rates (deferred payment options). It also has four residential projects (>1,000 units), which are expected to be gradually rolled out in 2023-2024.

• Sharp recovery in the hospitality segment to continue in 4Q. 3Q revenue per available room (RevPAR) for its hospitality portfolio jumped 89% YoY and was up 43% vs 1H, boosted by occupancy and room rate increase across all markets. The Singapore, UK, and US markets, which account for the majority of its hospitality portfolio, were the best performers with RevPAR (3Q) rising 167%, 165% and 60% YoY. Overall gross margins also rose 14ppts to 36.2% indicating that revenue growth well exceeded inflation pressures. Near-term outlook remains positive despite an anticipated slowdown in 2H23.

• Fund management’s assets under management (AUM) less likely to hit USD5bn target by 2023. Management noted that it has paused plans for a UK commercial REIT IPO in Singapore. With the sharp rise in interest rates, we see less chance of it being listed as a REIT by 2023. Fund management’s AUM as of 1H stood at USD2.9bn, and we believe it is challenging to achieve the USD5bn target by end-2023. On the balance sheet front, the group’s gearing has been lowered to 0.52x (including investment properties at a fair value) providing SGD1-2bn debt headroom to tap into market opportunities arising from current market uncertainties.

• No changes to our estimates, ESG score of 3.3 out of 4.0 – based on our proprietary in-house methodology. As this ESG score is three notches above our country median, we apply a 6% premium to derive our TP.

Source: RHB Research - 2 Dec 2022