Broker's take: Jefferies upgrades CDL to 'buy' on property market upswing

ANALYSTS from Jefferies have upgraded City Developments Limited (CDL) to a "buy" rating, raising its price target to S$14.8, on the back of an upswing in the property market and the growth of CDL's land bank.

Since Jefferies last upgraded its price target for CDL in June 2017, the property developer has deployed S$1.27 billion in capital to purchase two residential sites - Amber Park and a site in Tampines. "We estimate about S$200 million of profit from these two projects", the analysts added.

They also said that CDL should stand to benefit from the positive sentiment in the property market when its New Futura and South Beach Residences projects are launched.

However, they maintained a cautious view on CDL's hotel division and its UK operations, with the latter facing Brexit-related risks.

On CDL's revised offer for the privatisation of Millennium & Copthorne Hotels (MLC), the analysts noted: "Irrespective of whether the deal goes through or not, our concerns relating to increased room supply, lower corporate demand in Singapore and changing dynamics presented by home sharing, growth of online travel agents and industry consolidation in key gateway cities remain."

Noting that CDL shareholders would have to bear the burden of capital expenditures related to room upgrades unless minority shareholders' stakes in MLC are purchased at a discounted value, the analysts said in a research note that they were unsure if the deal would benefit CDL shareholders.

Jefferies highlighted growing unemployment, sharp rise in interest rates, weak take-up during launches, and dialling up of macro-prudential measures as other key risks to their "buy" rating.

CDL shares were up S$0.07 or 0.5 per cent to S$12.93 as at 10.52am.