• Keep BUY, new SGD8 TP from SGD8.20, 39% upside. City Developments core earnings missed estimates on lower margins and higher interest costs. FY23 was an active year for acquisitions, particularly in overseas markets, but CDL expects more divestments in FY24 (target: SGD1bn). 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. The share price has under-performed, but more divestments and recycling to fund platforms could act as re-rating catalysts.

• Singapore residential projects continues to sell well. CDL’s new launches last year – Tembusu Grand and The Myst – and the recent launch of executive condominium Lumina Grand have all sold >50% units, while the majority of projects launched before 2023 remain fully sold. CDL plans to launch Union Square Residences (366 units; former Central Square site) and Champions Way (348 units) in 2H24. We expect good responses for both sites, considering limited new launch supply in the area and good location attributes. Management acknowledged that land costs remain high, but it will continue to selectively bid for sites in upcoming tenders. We expect margins to be tight in the high single-digits to teens – depending on sites.

• FY24 divestment target of SGD1bn. We believe key divestment options include divesting stakes to a partner or fund in the global living sector portfolio – which has now achieved sizeable scale of SGD2.6bn – and divesting some of its overseas commercial and hotel assets into a private fund or REIT.

• Remains bullish on long-term UK prospects. The group completed major acquisitions in the UK last year, which include St Katharine Docks (GBP395m), 1NQ (a forward funding private rented sector or PRS development), and Modern Wharf – a mixed development site. CDL also has a sizeable purpose-built student accommodation or PBSA portfolio of 2,346 beds from six UK properties, which continue to see healthy demand (97% occupancy). The UK currently accounts for c.19% of its total asset value.

• Hospitality recovery intact, but growth set to moderate. We expect revenue/available room or RevPAR growth to moderate to mid-single-digits in FY24 after 2023’s 25% increase. CDL made three hotel acquisitions last year, including Sofitel Brisbane Central (416 rooms), Nine Tree Premier Hotel Myeondong II, and Bespoke Hotel Osaka Shinsaibashi (256 rooms).

• We cut our FY24F-25F PATMI by 9-12% by adjusting our margin and interest cost assumptions. Our TP is based on 45% discount to CDL’s RNAV of SGD13.99/share. Its 3.3 ESG score is two notches above the 3.1 country median –hence, our TP includes a 4% ESG premium.

Source: RHB Research - 29 Feb 2024