Atiqah Mokhtar Published on Fri, Aug 13, 2021 

Analysts have kept their “buy” calls on City Developments (CDL) after it reported its 1HFY2021 results on August 12, despite largely missing expectations.

Macquarie Research kept its “outperform” call with a higher target price of $9.55. Similarly, Daiwa Capital Markets, and UBS Global Research kept their “buy” calls with higher target prices of $9.35 and $9.70 respectively.

DBS Group Research and Citi Research also kept their “buy” calls with target prices of $10.50 and $11.02 respectively. Meanwhile, RHB Group Research has kept its “buy” call but with a lower target price of $8.50, down from $8.70 previously.

CDL’s 1HFY2021 earnings largely missed analysts’ estimates on the back of weaker-than-expected hotel operations. Nonetheless, several of the analysts believe that the worst is over for CDL, with stronger performance expected in the second half of the year. The analysts also view CDL’s share price as undervalued.

Macquarie Research

For Macquarie analysts Derrick Heng and Hwee Yee Ong, the headline loss of $32 million was a disappointment. “The tough headline print reflects persistent losses at the hospitality business which had a PBT loss of $143 million (1H2020: $208 million),” they note.

The analysts anticipate a stronger 2H2021 to underpin a profitable FY2021.

Given the current discount of 62% to their realisable net asset value (RNAV) of $17.36 for CDL, Heng and Ong believe the stock is trading at “deep crisis level”. “[We] believe risk-reward is favourable and see potential NAV-accretive asset disposals as a catalyst to narrow the trading discount,” they say.

Daiwa Capital Markets

For Daiwa analyst David Lum, CDL’s 1HFY2021 performance also missed his forecasts.

To that end, he has lowered his FY2021-2023 core earnings per share (EPS) forecast by 11-22% on a more gradual hotel recovery profile. He has left his estimated NAV unchanged, except for contributions from land sale sites won in 1H2021. “With an unchanged assumed discount of 25% to our estimated NAV, we lift our 12- month target price to $9.35 from $9.28,” he says in a August 12 research note.

Lum says he continues to see deep value in the stock. ”We reaffirm our Buy rating as we believe its shares are grossly undervalued, despite the subdued 1H2021 performance,” he says.

He also believes there’s possible upside risk to his forecasts if the global hotel sector recovers by then, while greater clarity on CDL’s Fuji Xerox Towers and Cental Mall redevelopments could provide positive share price catalysts.

UBS Research

UBS analysts Michael Lim and Wai Fai Kok also anticipate a stronger 2H as hotel earnings pick up and asset divestments yield gains.

“On capital management, we expect CDL to address its high 65% net gearing via its SREIT listing of UK assets and further asset disposals. The financial exposure to Sincere’s potential bankruptcy is ring-fenced and net exposure on the balance sheet is capped at $117 million Management is unlikely to inject fresh capital at this point,” they add.

Their target price of $9.70 is based on 0.7 times FY2021 RNAV. “At 52% discount to RNAV, CDL is trading at more than one standard deviation below the mean. We believe valuations have adequately factored in its stake in Sincere and potential policy risk in Singapore. However, meaningful monetisation initiatives are not in the price in our view,” they say.

DBS Group Research

For DBS analyst Rachel Tan, CDL is trading at “distressed valuations”. “CDL is trading at attractive valuations at 0.8 times P/NAV which is even lower than the low seen in global financial crisis (GFC) despite a more diversified and stronger balance sheet,” she says.

Tan believes CDL’s growth momentum will return as the economy picks up. She also believes ongoing and future redevelopments of its older properties in Singapore presents significant upside potential for NAV which are not priced in yet.

RHB Group Research

For analyst Vijay Natarajan, signs of a potential turnaround are emerging. “With its investment in Sincere Property nearly fully impaired, management reiterated that it does not anticipate any further significant losses from this,” he says.

Natarajan views plans to unlock value via redevelopment, asset enhancements, as well as a potential spin-off into listed platforms as positive re-rerating catalysts.