DBS Group Research analysts Rachel Tan and Derek Tan have maintained their “buy” call on City Developments (CDL) with a target price of $10.50 as they believe that its potential to unlock hidden value has yet to be priced in.
“CDL has quickened its pace to unlock the deep, hidden value of ‘legacy assets’ within its books via asset recycling or redevelopment, which presents a significant upside potential for NAV which we believe is yet to be priced in,” the analysts say, adding that investors will eventually appreciate the stock as it realises more gains.
The analysts note that CDL and MCL Land’s executive condominium (EC) Copen Grand booking of units is set to start on Oct 22. This will be the first residential project launch after the goverment's recent cooling measures announced on Sept 30.
Copen Grand will have 639 units across 12 blocks and will be located within the new 700-hectare new master planned Tengah Town. The analysts highlight that buyers will have a first mover advantage in the work-live-play precinct, with the authorities planning to build over 42,000 new homes with offices and supporting amenities in the medium term.
The project will be located within walking distance to three MRT stations on the upcoming Jurong Region Line – Tengah, Hong Kah, and Tengah Plantation.
“Planting its first luxury EC in the newest planned neighbourhood in Singapore, CDL and MCL Land is probably one of the first developers in recent years to launch a new project in Tengah. While there may be risks in starting in a new town, we believe there is infinite future potential for this new town,” the analysts say.
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Based on market chatter, the analysts understand that the show-flat received less than 10,000 visitors on the first weekend of opening and accepted a good traction of e-applications. Having visited the show-flat on a weekday, the analysts saw a very decent crowd constantly coming through, comprising some young couples and families.
“Our first impression of the show-flat was that it felt more like a private housing rather than an EC. We believe that CDL and MCL have really upped the game of this EC into a luxury condominium,” the analysts add.
They note that the pricing of the EC is in line with the market with decent sizes. A five bedroom premium unit, for example, is up to $1.88 million or $1,189 psf.
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The analysts say that the launch of the Copen Grand EC will be keenly watched, given that it will provide the market how demand for homes may have changed post the recently announced measures which aim to curb the continued rise in property prices in the face of higher mortgage rates and economic uncertainties.
That said, based on their estimates of the past four EC launches in the past two years, most of the projects have already been fully sold, with only North Gaia (launched April) still at about 29% sold as of end-Sept. This implies a strong inherent demand from households for this hybrid public-private housing asset class, the analysts add.
Meanwhile, CDL has recently been awarded a new EC site at Bukit Batok Avenue 5 at $626 psf per plot ratio. “We note that the pricing for the Bukit Batok Avenue 5 site is about 5% tad lower than the tender price for a recent EC site that was awarded to Qingjian nearby in Bukit Batok West Avenue 8.
“Based on our estimates, CDL should be looking to price the EC at close to $1,200 psf given estimated breakeven of between $1,300 psf onwards,” they add.
CDL is currently trading at an attractive valuation of 0.8x P/NAV, below the low seen during the Global Financial Crisis. DBS’ target price of $10.50 is based on a 35% discount to RNAV, which implies 1x P/NAV, slightly above -0.5 standard deviation of its historical range.
As at 5.09pm, shares in CDL are trading 2 cents higher or 0.27% up on Oct 18 at $7.50.