SINGAPORE (Oct 18): Credit Suisse is resuming coverage of City Developments with an ‘outperform” call and a target price of $11.60.

While CDL is the developer with the largest residential land bank locally, Credit Suisse believes it has successfully de-risked its residential exposure.

Although Singapore’s tepid residential outlook of late has capped CDL’s re-rating potential, there is growing evidence of a sustainable recovery and that should drive a re-rating of the stock.

In 1H19, CDL saw a 21% y-o-y growth in sales, thanks to the healthy take-up of its new launches.

“With stable buyer fundamentals and policy tools on hand to provide downside support in the event of a weak macro, we believe CDL is in good stead to benefit from an expected volume recovery from 4Q19 onwards,” says lead analyst Louis Chua in a Wednesday report.

And although the privatisation of hospitality unit Millennium & Copthorne is 1% EPS dilutive, Chua says the move is a long-term positive as earnings for M&C are at a 16-year low.

Chua expects M&C’s portfolio to see significant growth opportunities, given 19% more rooms in the pipeline and potential AEIs for key hotel assets.

CDL’s mature CBD assets such as Central Mall (Office) and Liang Court are also expected to be redeveloped into more productive mixed-use developments by increasing their plot ratios in the medium-to-long term.

At present, CDL trades at an attractive 34% discount to RNAV, 1.0 SD below historical averages of 10%. It is also trading at 0.86x P/B, 1.1 SD below historical averages of 1.75x and 32% below the peak of 1.26x P/B last March.

Year to date, shares in CDL are up 30% to $10.41 or 20.4 times FY19 forecast earnings.