Analysts from CGS-CIMB Research and OCBC Investment Research (OIR) have maintained “add” and “buy” on City Developments Limited (CDL) with unchanged target prices of $8.97 and $9.12 respectively following the group’s 1QFY2021 business update.

The leading real estate developer reported robust residential sales in the quarter and stable commercial performance, although, unsurprisingly, its hospitality segment continues to be a drag on the group’s earnings.

“In its 1QFY2021 operational update, CDL indicated that while there are signs of improvement in its core business segments, overall business conditions remain challenging with the impact of Covid-19,” says CGS-CIMB analyst Lock Mun Yee in a May 19 report.

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“Management reiterated its strategy of enhancing its portfolio through asset enhancements, repositioning and redevelopment initiatives, while looking for growth opportunities via strategic investments and capital recycling initiatives, including in the fund management space,” Lock adds.


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CDL’s Singapore office and retail portfolio reported a high committed occupancy rate of 91.4% as at end-1QFY2021.

Office rental reversions remained positive during the quarter while its retail operations continued to face headwinds amid muted shopper traffic.

In addition to her unchanged target price estimate, Lock has also kept her earnings per share estimates on the counter the same.

“At the current share price, the market has largely factored in the impact of the drag from its China investment. A potential re-rating catalyst is faster-than-expected recovery in the global hospitality sector. Downside risk: drag from weak macro outlook,” she writes.

For the OCBC research team, it expects the challenging environment for CDL to persist.

That said, like Lock, the OCBC team believes the negative impact from the Covid-19 pandemic has been priced in.

“Furthermore, over the medium to longer term, we see opportunities for management to unlock value via the restructuring of its Millennium & Copthorne hotels portfolio, potential spin-off of its UK commercial properties into a new REIT and redevelopment of some of its older commercial properties in Singapore to benefit from the government's CBD Incentive Scheme,” it says in a May 20 report.

The team also expects CDL’s retail performance to deteriorate in the 2QFY2021 on the back of the heightened restrictions under Phase 2, which will impact Singapore commercial operations.

“Given the Phase 2 (Heightened Alert) situation in Singapore, CDL had announced that it would be rolling out rental, operational and marketing support to tenants adversely impacted by the restrictive measures, with those mandated to close fully getting more support than others,” it writes.


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“Any rental concessions would typically be a percentage of their total monthly rent and also dependent on the period affected, which remains fluid at this point in time,” adds the team.

Potential catalysts identified by the OCBC team include stronger-than-expected take-up rates for residential projects, a faster-than-expected increase in residential prices in Singapore, and the unwinding of cooling measures.

Conversely, risks include a slowdown in macroeconomic conditions that may dampen consumer and business sentiment, weaker-than-expected margins for its residential projects and another round of cooling measures implemented by the Singapore government.

Shares in CDL closed 4 cents lower or 0.5% down at $7.43 on May 21 or 0.8 times P/NAV, according to OCBC's estimates.