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CDL is 'undervalued' despite share price outperformance year-to-date: RHB

To RHB analyst Vijay Natarajan, CDL’s business updates were “in line” with his expectations.

RHB Group Research analyst Vijay Natarajan is keeping his “buy” call on City Developments (CDL) with an unchanged target price of $9.75 after the property group released its updates for the 3QFY2022 ended Sept 30 on Nov 30.

To Natarajan, CDL’s business updates were “in line”. They also showed a “continued pickup” across all three market segments.

“CDL’s strategy of deleveraging its non-core assets over last two years has placed it in a relatively better balance sheet position amid rising interest rates,” Natarajan writes.

In his view, the group’s key earnings drivers continue to be its “healthy unbilled sales” from its Singapore resident projects. The recovery of the hospitality segment is another earnings driver for the group, Natarajan adds.

In its update, CDL’s management noted that it has paused its plans to list its UK commercial REIT in Singapore. Amid the significant increase in interest rates, Natarajan sees the chances of the REIT being listed by 2023 being lower.

“Fund management’s assets under management (AUM) as of 1H stood at US$2.9 billion ($3.92 billion), and we believe it is challenging to achieve the US$5 billion target by end-2023,” the analyst writes.

“On the balance sheet front, the group’s gearing has been lowered to 0.52x (including investment properties at a fair value) providing $1 billion to $2 billion debt headroom to tap into market opportunities arising from current market uncertainties,” he adds.

As at Natarajan’s report on Dec 2, shares in CDL have grown around 22% year-to-date (ytd). Despite the share price outperformance, the stock remains undervalued at around a 50% discount to the group’s revised net asset value (RNAV), he says.

Shares in CDL closed 1 cent lower or 0.12% down at $8.30 on Dec 2.

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