Brokers' take: DBS upgrades CDL to 'hold'; OCBC keeps 'hold', raises fair value to S$9.81

STRONG first-half results and potential contributions from its fund management platform saw brokers DBS and OCBC keep a positive outlook on City Developments' (CDL) stock, although their analyses were tempered by potential downsides including subdued buyer sentiment from property cooling measures.

DBS analysts Rachel Tan and Derek Tan upgraded their call to "hold" from "fully valued", with a maintained target price of S$10.00, while OCBC kept its "hold" call but upgraded its fair value estimate to S$9.81 from S$9.59 previously.

The stock was down 2.73 per cent, or 27 Singapore cents, to S$9.62 as at 12.30pm.

"Given the heightened uncertainty on property sales in the coming quarters coupled with the group having the largest inventory of new units for launch, City Developments' share price is likely to be weak in the immediate term," DBS wrote.

Management has "turned cautious" on the residential sector after implementation of tightening measures, DBS added, with CDL expecting property prices to decline by some 5 to 7 per cent and sales to slow down.

CDL's fiscal first-half net profit jumped 36 per cent year-on-year to S$285 million largely due to higher contributions from property development and divestment gains of S$29 million from CDL Hospitality Trust in the fiscal first quarter.

The property group's higher interim dividend per share of six Singapore cents for the quarter - versus four Singapore cents a year ago - could, however, potentially imply management's confidence on CDL's outlook despite potential headwinds, DBS said.

OCBC Investment Research, meanwhile, similary assessed that buyer sentiment in the Singapore residential space will be "subdued at least in the near term", with the real impact only becoming apparent in the coming months.

There are encouraging signs, however, as CDL managed to sell five units of its New Futura project after the cooling measures came into effect, with 92 out of the 124 units sold as at Aug 5, OCBC said.

OCBC analyst Andy Wong Teck Ching added that management will seek to achieve its recently-stated goal of attaining S$900 million of recurring Ebitda (earnings before interest, taxes, depreciation and amortisation) via asset enhancement initiatives and repositioning of its investment properties, coupled with growing its fund management business to drive its management and performance fees.

CDL's goal is to be a leading Asian fund manager by 2023, targeting to achieve US$5 billion in assets under management (AUM) by then.

In light of the residential impact, CDL is also looking to improve its recurring income stream with potential acquisitions. The group has acquired an office block - with some 4,000 square metres in gross floor area - in Shanghai's North Bund Business District for 148 million yuan (S$29.59 million), with co-working company Distrii signing a "long master lease" agreement for the building, DBS wrote.

CDL is also acquiring an upcoming S$300 million office asset in one of the target markets which is expected to be announced soon.