City Developments Limited – Lifted by hospitality and divestment gains August 24, 2022 799

PSR Recommendation: ACCUMULATE Status: Downgraded
Last Close Price: 5.5 Target Price: 8.86
  • 1H22 revenue of S$1.47bn (+23.5% YoY) in line at 46% of our forecast. PATMI exceeded at 107% due to divestment gains from Millennium Hilton Seoul of $526.2mn and $94mn gains from deconsolidation of CDLHT, excluding which, performance would have been in line.
  • All three core segments improved. Strong residential sales (712 units sold, in line) and recovery in the hospitality segment (RevPAR +110% YoY), which has turned EBITDA positive. Investment properties portfolio recovered with office and retail above expectations.
  • 639-unit JV EC project, Copen Grand set to be launched in 4Q22; demand for project expected to be robust. Hotel operations to also benefit from reduction of Covid-19 restrictions, M&A and divestment opportunities.
  • Downgrade to ACCUMULATE and lower RNAV-derived TP of $8.86 (prev. $9.19). We view CDL as a proxy for the Singapore residential market and hospitality recovery. CDL is trading at an attractive 40% discount to our RNAV/share of S$13.64. Asset monetisation, unlocking value through AEIs and redevelopments, and faster-than-expected recovery in hospitality portfolio are potential catalyst for CDL, which could help narrow the discount between CDL’s share price and RNAV. However, TP is reduced to $8.86 as we incorporate higher borrowing costs for FY22e/FY23e along with slower profit recognition for its residential properties.

 

 

 

The Positives

  • All three core segments improved. Residential sales remained robust in 1H22 despite cooling measures imposed at the end of the year. CDL sold 712 units with total sales value of $1.6bn vs. $1.7bn in 1H21. Sales value is comparable with 1H21 despite 27% less units sold as the Group’s existing inventory has been substantially sold. Its hotel operations globally improved with the easing of travel restrictions and the divestment of Millennium Hilton Seoul. Investment properties remained resilient with its office and retail portfolio recording strong occupancy in 1H22.

 

  • Hotel segment 1H22 PATMI ahead, at 60% FY22e. RevPAR surged 110% YoY, driven by a 53% increase in the average room rate and 16% points (58.5% from 42.6%) increase in occupancy. Hotels in US and Europe continued to recover faster than those in Asia, though average room rates increased across all regions, signalling a strong recovery momentum.

 

  • On-track for AUM target of US$5bn in 2023. Fund management remains an integral part of the Group’s transformational strategy and the Group will drive AUM growth via investment opportunities in both listed (IREIT and CDLHT) and unlisted platforms. It has an AUM of US$2.9bn, and management remains confident of hitting the Group’s US$5bn target by 2023. We believe one way it could boost its AUM is to pivot the proposed listing of its UK commercial REIT into a private fund.
  • 12 cents special dividend a surprise, share buyback under consideration. A special dividend of 12 cents was declared vs. 3 cents in the same period last year and 6 cents pre-Covid. We revise our FY22e dividend payout to 24 cents on the back of management’s optimistic outlook for rest of 2022. Management is considering adopting share buybacks due to the current significant discount to its RNAV.

 

The Negative

  • Replenishment of landbank to slow as land costs have surged. The management will be selective with the replenishment of its landbank. Management remains confident of replenishing its landbank as it believes that property prices will continue to trend up on the back of higher costs, though it expects volumes to slow.

 

Outlook

Healthy inventory levels allow for more conservative bidding

Cumulative launch pipeline of 1,931 units with the next launch Copen Grand (Tengah Garden Walk EC, 639 units) targeted for 4Q22. CDL also picked up three more sites which will add ~1,458 units to the pipeline. CDL’s inventory levels are healthy, allowing it to be more selective and conservative when bidding for new sites. The site at Upper Bukit Timah Road was purchased in an off-market deal from Tan Chong Realty for S$126.3mn or S$603 psf, and could yield 603 units. On 26 Jan 2022, CDL won the tender for the Jalan Tembusu GLS with a bid of S$589.9mn or S$1,302 psf, adding 640 units to the pipeline. Given the higher land prices and cost of construction, CDL is aiming for margins of at least 10% for new projects.

 

Strategic review of global hospitality portfolio

CDL has launched a strategic review of its global hospitality portfolio that should help narrow the discount to its RNAV. Its restructuring plans for its hotel business, Millennium & Copthorne, in the next few years should help the Group crystalise value for its assets. These restructuring plans may include asset divestments, portfolio optimisation as well as a rebranding of its hotels to improve earnings and drive upside to NAV.

Important Information

This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.

By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.

The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.

Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.

This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.

Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.

Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.

Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.

To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.

The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.

This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.

This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.

IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE

Where the report contains research analyses or reports from a foreign research house, please note:

  1. recipients of the analyses or reports are to contact Phillip Securities Research (and not the relevant foreign research house) in Singapore at 250 North Bridge Road, #06-00 Raffles City Tower, Singapore 179101, telephone number +65 6533 6001, in respect of any matters arising from, or in connection with, the analyses or reports; and
  2. to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, Phillip Securities Research accepts legal responsibility for the contents of the analyses or reports.
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

About the author

Profile photo of Terence Chua

Terence Chua
Senior Research Analyst
Phillip Securities Research

Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.

He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.

Get access to all the latest market news, reports, technical analysis
by signing up for a free account today!