Quickening its pace to unlock value
- Strong earnings rebound in FY21 led by hospitality segment
- Announced 31.1 Scts dividend per share including 19.1 Scts dividend in specie of CDLHT shares
- Key positives: i) record high FY21 residential sales, ii) hospitality assets recovering towards pre-COVID levels, iii) asset divestment gains to drive FY22F earnings and more to come
- Maintain BUY; TP of S$10.50
Investment Thesis:
Realising hidden value. City Dev has quickened its pace to unlock deep, hidden value of “legacy assets” within its books via asset recycling or redevelopment which presents significant upside potential for NAV which we believe has yet to be priced in.
Recovery momentum especially from hospitality. COVID-19 has hit operations, but we see light at the end of tunnel as growth momentum returns and the economy picks up, particularly from the hospitality segment.
Trading at “distressed valuations”. City Developments Limited (City Dev) is trading at an attractive valuation at 0.8x P/NAV (book value at cost) which is even below the low seen during the global financial crisis (GFC).
Valuation:
Our TP of S$10.50 is based on a 25% discount to RNAV, which implies 1.1x P/NAV, slightly above -0.5SD of its historical range.
Where we differ:
Potential to unlock hidden value yet to be priced in. City Dev has quickened its pace in optimising its portfolio and unlocking deep hidden value via asset divestments to realise huge gains or redevelopment with GFA uplift. We believe investors will eventually appreciate the stock as City Dev realises more gains.
Key Risks to Our View:
Slower-than-expected economic recovery and rising unemployment. A longer drag in the economic recovery post COVID-19 will raise earnings risks.
Property measures impacting Singapore residential market. Additional property measures that could impact Singapore’s residential market more than expected may see prices and demand soften, thus impacting its unsold stocks.