SINGAPORE (Mar 1): UOB Kay Hian is keeping its “buy” recommendation on City Developments (CDL), even as the property developer saw its results come in slightly below expectations in 4Q17.

CDL reported a 23.4% fall in earnings to $186.7 million during the quarter, while FY17 earnings came in 17.6% lower at $538.2 million.

See: CityDev reports 23.4% fall in 4Q earnings to $186.7 mil despite higher sales

“Earnings are below our expectations, at 93% of our estimate,” says lead analyst Vikrant Pandey in a Thursday report. “While results were slightly below expectations, management remains optimistic on prospects for the Singapore residential property segment.”

The healthy sentiments are not expected to be hampered by a 1 percentage point increase in top marginal buyer's stamp duty (BSD) rates to 4% for residential properties above $1 million.

See: Top marginal buyer's stamp duty for residential properties raised to 4%

“Management sees a muted effect on the mass-market segment, while expecting discerning buyers in luxury developments to see the strong potential of property investment in Singapore compared to other global cities like Hong Kong where prices have increased significantly,” Pandey says.

“The land bids tendered by CDL in the past year also suggests it is expecting over 10% appreciation in residential prices on average,” he adds.

At the same time, CDL plans to build a US$5 billion ($6.6 billion) AUM fund management platform by 2023, led by new CIO Frank Khoo, who is a former AXA veteran.

“Not only will the platform allow CityDev to play on both the listed and unlisted sides of the real estate industry, it also creates a stable income stream, greater access to capital and diversifies its customer base to include institutional investors,” Pandey says.

UOB has a target price of $14.03 for CDL, representing an upside of close to 10% from its current price.

As at 3.47pm, shares of CityDev are trading 2 cents up at $12.78, implying an estimated price-to-earnings ratio of 17.4 times and a price-to-book ratio of 1.0 times for FY18.