Analysts see up to 25% upside for CDL following record earnings in 1HFY2022

Jovi Ho
5-min read

Year to date, CDL (+21%) has outperformed both developers (+9%) and the STI (+5%).

Analysts see further upside for City Developments Limited (CDL) following its record-high earnings in 1HFY2022.

On Aug 11, CDL posted record earnings with net profit after tax and non-controlling interest (PATMI) of $1.13 billion for the 1HFY2022 ended June.

The period’s earnings is a reversal from the $32.1 million loss in 1HFY2021. It is also the highest PATMI achieved since CDL’s inception in 1963.

In an Aug 12 note, RHB Group Research analyst Vijay Natarajan maintains “buy” on CDL with a raised target price of $9.75 from $9.30 previously. The new target price represents an 18.2% upside.

“CDL posted record 1HFY2022 profit boosted by one-off items, while operating PATMI was broadly in line. Management’s strategy of extracting value from its non-core assets is beginning to bear fruit, with positive impact to net asset value (NAV) and bottomline,” writes Natarajan.

He adds: “Outlook is positive for 2HFY2022 as the company has healthy unbilled residential sales, and a strong recovery is seen for its hotel and investment portfolio. Valuation is cheap, in our view, with the stock trading at more than 50% discount to its realisable net asset value (RNAV).”

The record PATMI was largely due to the divestment gains from CDL’s sale of Millennium Hilton Seoul and its adjoining land site for 1.1 trillion won ($1.25 billion), as well as the gain on deconsolidation of CDL Hospitality Trusts (CDLHT) from the group resulting from the distribution in specie.

CDL’s hotel operations reversed into black in 1HFY2022 with all markets registering positive EBITDA. Natarajan expects a stronger performance in 2HFY2022. “Global revenue per available room (RevPAR) rose 110% y-o-y, driven by 53% growth in room rates, which returned to pre-Covid-19 levels on the back of a strong pent-up leisure travel demand.”

Post strategic review of its Millennium & Copthorne portfolio, CDL categorised its assets into core assets with focus on operational efficiency, assets earmarked for asset enhancements, redevelopments and divestments. “We expect more value unlocking moves ahead from its hotel portfolio,” says Natarajan.

Singapore projects underpin residential development activities 

Meanwhile, CGS-CIMB Research analyst Lock Mun Yee maintains “add” on CDL but with an unchanged target price of $8.97.

CDL’s property development segment posted a profit before tax (PBT) of $104 million, with profit recognition from Singapore and China projects as well as New Zealand property sales.

CDL sold 712 residential units in 1HFY2022 valued at $1.6 billion. Sales were driven by the recently launched 407-unit Piccadilly Grand (82% sold to date). CDL plans to launch Copen Grand Executive Condominium in 4Q2022. It has another 1,500 units in its pipeline from 2023F in Singapore.

Meanwhile, sales at its Melbourne, Brisbane and New South Wales continued to see a healthy take-up rate, says Lock. “To grow its pipeline, CDL had also entered into a new JV with New Urban Villages to acquire a mixed-use development site in Brisbane. CDL also continues to build scale in the private rental sector (PRS) in UK and Japan with a portfolio of 2,053 completed and under-development units, to build its recurrent income stream.”

Lock lowers her earnings per share (EPS) estimates for the  FY2022-FY2024 by 0.5%-20.8% to account for “exceptional items”. “Management shared that the collective sale of Tanglin Shopping Centre and Golden Mile Complex could potentially be completed towards year end. We have not included any gains from these sales, pending details of the transactions.”

According to Lock, CDL has indicated that it continues to execute on its strategic initiatives, including building its fund management platform and looking at innovation and venture capital. “A potential re-rating catalyst is a faster-than-expected recovery in the global hospitality sector.”

Small gift in 1HFY2022, larger gift in FY2022?

UOB Kay Hian Research analyst Adrian Loh awaits "another bonanza" in the year end.

"CDL declared a special interim dividend of 12 cents per share to reward shareholders post the divestment gains outlined above," writes Loh. "We would not rule out another special dividend on top of a final dividend when the company announces its 2022 results next year given that the company has sold another two assets via en bloc in 1HFY2022, which are Golden Mile Complex and Tanglin Shopping Centre."

In an Aug 12 note, Loh is maintaining "buy" on CDL with a raised target price of $9.87 from $9.20 previously.

Finally, Citi Research analyst Brandon Lee is focused on CDL’s asset recycling initiatives, which he expects will sustain “over the next six to 18 months”.

In an Aug 11 note, Lee maintains “buy” on CDL with a target price of $10.29, which represents a 24.7% upside.

Lee writes: “CDL’s 1HFY2022 results painted an improving hospitality sector while the NAV expansion of 10% h-o-h, gearing improvement and 1HFY2022 special interim dividend per share (DPS) of 12.0 cents provide strong indication of its ongoing proactive asset recycling initiatives, likely more hotels to its recently-deconsolidated CDLHT and non-core strata-titled projects.”

Year to date, CDL (+21%) has outperformed both developers (+9%) and the STI (+5%).

 

As at 1.37pm, shares in CDL are trading 8 cents higher, or 0.97% up, at $8.32

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