SINGAPORE (Aug 10): DBS Group Research is upgrading City Developments to “hold” from “fully valued” at an unchanged target price of $10.00.
With a current share price at $9.71 and potential upside of 3%, DBS believes the potential downside risks from the recent implementation of new cooling measures is reflected in its valuation.
DBS says CityDev’s share price is likely to be weak in the immediate term given the heightened uncertainty on property sales in the coming quarters coupled with the group having the largest inventory of new units for launch.
In addition, margins of units from the landbank acquired in late 2017–2018 could be hit given that the ability to raise property prices may be limited following a turn in sentiment.
But despite the change in sentiment, property sales remain strong while its fund management platform saw a successful launch.
To recap, CityDev posted strong 1H18 results led by property development earnings from Singapore, China and Japan.
1H18 net profit jumped 36% y-o-y to $285 million largely due to higher contributions from development and divestment gains, partially offset by lower contributions from hotel operations.
Looking ahead, CityDev has a 10-year target to achieve $900 million recurring EBITDA, partly contributed by its fund management platform with a 10-year AUM target of US$12 billion. Its launch pipeline is also also mainly on track except South Beach Residences and Boulevard 88 while the upcoming acquisition of a $300 million office asset is to be announced soon.
“We upgrade the stock to ‘hold’ from ‘fully valued’ with target price unchanged at $10, based on 35% discount to RNAV, which implies 0.9 times 2018F NAV,” says lead analyst Rachel Tan in a Friday report.