SINGAPORE (Jan 17): City Developments is expected to pounce on more acquisition opportunities this year to capitalise on the current market weakness, says RHB.
And while CDL shares have rebounded 7% year-to-date outpacing the STI Index, outperformance is expected to continue with acquisitions acting as the key rerating catalyst.
Meanwhile, CDL’s UK portfolio -- which makes up 11% of assets -- is also set to receive a boost from better-than-expected performance of UK economy.
Higher recurring income is also expected with the South Beach mixed development becoming fully operational.
As such, RHB is maintaining its “buy” call for CDL with a higher target price of $9.70.
In a Tuesday report, analyst Vijay Natarajan says CDL’s net gearing would narrow to 19% in FY16 from 26% in FY15 after its recent divestments.
That gives it a healthy debt headroom of over $3 billion, assuming a gearing level of 50%.
With the sizeable war chest, Natarajan expects CDL to engage in more acquisitions -- likely in Singapore, Japan and UK markets.
Meanwhile, contributions from South Beach are expected to fully kick in this year with the newly rebranded JW Marriott hotel opening its doors in December.
“We expect the hotel component to contribute an additional $10-15 million pa to CDL’s (50% stake) recurring income stream based on a 80% occupancy and room rates of $350-400,” says Natarajan.
The office tower is also 99% leased with average rents of around $10 psf. More than three quarters of the South Beach retail space have also been leased with 70% of retail outlets commencing operations.
Still, CDL has yet to launch its 190-unit luxury residential units in the project.
As for property projects, Natarajan expects more overseas launches this year.
“In 2017, we expect it to launch South Beach Residences in Singapore and its overseas projects in the UK, Japan and China depending on market conditions,” says the analyst.
Its recent local launches -- Forest Woods and Gramercy Park -- also saw excellent take-up rates, he adds.
Shares of CDL are down 3 cents at $8.83.
