SINGAPORE (Aug 12): UOB Kay Hian is maintaining its “buy” call on City Developments Limited (CDL) with a target price of $10.36. Here are a number of reasons why lead analyst Vikrant Pandey continues to remain positive on the developer and expects it to enjoy better 2H contributions:

1. Increased transparency

According to Pandey, CDL has been “steadily improving its disclosure” since it was reinstated into the FTSE EPRA/NAREIT Global Real Estate Index. Most recently, the group included occupancy information on its office and retail investment assets, on top of demarcating its EBITDA segments and disclosing project equity stake.

2. Potential third PPS transaction

CDL is currently mulling its options on a potential Profit Participation Securities (PPS) scheme for Nouvel 18. Should the deal materialise, Panday says this will pave the way for the developer to unlock value from the condominium.

3. Improved clarity from new classification

According to S&P Dow Jones Indices, real-estate shares will split off from financials to become the 11th sector of the S&P 500, starting from Sept 19 this year. Pandey highlights CDL’s position as the “most liquid residential play on Singapore property”. This means CDL is likely to be a key beneficiary of the new classification, which will bring improved visibility and focus on real estate as various index providers adjust their indicesThis comes despite the group reporting flat 2Q16 earnings of $133.8 million, which is marginally below the research house’s expectations.

(See: CDL’s 2Q earnings flat at $133.8 mil)

To recap, CDL group reported 2Q16 earnings came in flat at $133.8 million, which is marginally below the research house’s expectations.

Pandey says 2Q saw a boost from full income recognition of an executive condominium (EC) project, Lush Acres. This “cushioned the sting” from a tepid hospitality segment, as global revenue per available room (RevPAR) declined 3.7% y-o-y, mainly attributable to performances in New York, London and Singapore.

On this, Pandey says CDL’s management is taking up the strategy of cost containment to improve margins, and is even floating the prospects of hiring consultants to minimise operating costs.

As at 2:59pm, shares of CDL are down 1.13% at $8.77.