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Macro headwinds a potential dampener for CDL: OCBC

Samantha Chiew
Samantha Chiew12/1/2022 03:12 PM GMT+08  • 3 min read
Macro headwinds a potential dampener for CDL: OCBC
Macroeconomic headwinds may slow down CDL's growth. Photo: City Developments Limited
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OCBC Investment Research is reiterating its “hold” recommendation on property developer City Developments Limited (CDL) with a fair value estimate of $8.74, lowered from $9.12 previously, as the research team sees current macro headwinds as a potential dampener for the group’s outlook.

While the research team notes that the property developer has three core business segments – property development, hotel operations and investment properties with diversified operations in countries such as Singapore, China, Japan, UK and US – the group has shown clear signs of recovery from the pandemic across its various business operations. It has also kept to its target of achieving US$5 billion ($6.8 billion) in asset under management (AUM) by 2023.

While the group did not provide a business update for its 3QFY2022 ended Sept 30 operations, the research team believes that its hotel operations have continued to recover firmly from the pandemic, judging from industry trends and operating metrics reported by other hospitality players.

To be sure, according to data from hospitality industry analytics company STR, revenue per available room (RevPAR) in the US for the period Nov 13 to 19 came in 19.8% higher than the comparable week in 2019. Outside of the US, global occupancy rates increased 3.6 percentage points (ppt) week-on-week (w-o-w) to 63.9% for the period Nov 6 to 12. This w-o-w improvement was the largest in the past 37 weeks, with 70% of all countries recording an increase.

To recap, CDL’s 1HFY2022 RevPAR gained 110.4% y-o-y, driven by a 53.2% increase in average room rate and a 15.9 ppt jump in occupancy rates.

Meanwhile, the group’s management has been proactive in reconstituting its portfolio to unlock value for shareholders, such as the divestment of assets at a premium to their book values and redeveloping some of its older commercial properties in Singapore to benefit from the government's central business district (CBD) Incentive Scheme.

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CDL recorded large divestment gains in its prior 1HFY2022 results due in part to the divestment of Millennium Hilton Seoul hotel (pre-tax gains of $912 million booked). It is also poised to book further gains in the future from the collective sales of Tanglin Shopping Centre and Golden Mile Complex.

CDL also achieved brisk sales for its Singapore residential projects, such as the successful sale of 77% of its Piccadilly Grand project (average selling price of $2,150 psf) during its launch weekend in May. This was followed up with 73% of its Copen Grand Executive Condominium (EC) project in Tengah Town being sold on its launch day in late October at an average selling price of $1,300 psf.

Management has earmarked at least three residential projects for launch in 2023, amounting to 1,292 units.

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“Notwithstanding these positives, we believe the softer global economic outlook and higher interest rates could be a potential dampener to its growth prospects,” says the research team, while noting that the group’s net gearing stood at 52% (including revaluation surplus from investment properties), as at June 30. But only 35% of its debt was on fixed rates.

As at 3.10pm, shares in CDL are trading at $8.28.

Photo: City Developments Limited

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