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Broker's take: Jefferies upgrades CDL to 'buy' amid property sector headwinds

JEFFERIES has upgraded City Developments (CDL) from "hold" to "buy", citing decent take-up for the developer's recent property launches, a pickup in hotel operations and its diversified portfolio as driving factors. 

Equity analyst Krishna Guha also raised his target price for the counter from S$11 to S$12. As at 2.52pm, CDL was trading 1.31 per cent up at S$9.28.

One positive has been decent take-up for CDL's recent residential property launches, despite the additional cooling measures announced last July.

According to Mr Guha, CDL has been able to achieve a take-up in excess of 80 per cent of launched units for projects such as The Tapestry and Whistler Grand. Also, more than half of the launched units at South Beach Residences have been sold at an average price of S$3,350 per square foot.

"The trend bodes well for projects to be launched in 2019," he said.

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Furthermore, Mr Guha observed that hotel operations are turning positive in Singapore.

He noted that visitor arrivals are growing at 6 per cent annually, outstripping room supply which they expect will grow at 1.5 per cent. Revenue per available room (RevPAR) for Singapore hotels has increased 4.3 per cent year on year, driven by a 2.3 percentage point increase in occupancy and stable room rates.

He added that while overseas hotel operations are facing headwinds, CDL's management has indicated a "firm intention" to improve margins.

Finally, the analyst believes CDL's diversified portfolio and growing recurring revenue stream will mitigate any weakness in its business segments. "Singapore contributes only half of CDL's assets/revenue, with Singapore residential segment contributing only an estimated 15 per cent of the net asset value," he pointed out.

Commercial rentals also account for 10 per cent of group revenue - improving office rents in Singapore should boost that segment, he said.

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