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Brokers' take: OCBC trims fair value estimate of CDL; CGS-CIMB lowers target price

OCBC Investment Research has lowered its fair value estimate of City Developments Ltd (CDL) to S$10.64 from S$10.74 previously, while CGS-CIMB has lowered its target price on the counter to S$10.10 from S$10.13.

Nonetheless, both OCBC and CGS-CIMB have maintained their "buy" and "add" calls respectively, citing value creation from CDL's redevelopment plans.

As at 3.45pm on Friday, CDL shares were trading at S$8.43, down S$0.03 or 0.4 per cent. 

OCBC has lowered its FY20 forecast for CDL's profit after tax and minority interests by 21.8 per cent to S$243.9 million, and reduced its estimate for the counter's dividend per share by 40 per cent to 12 Singapore cents per share this year. 

That said, OCBC's research team is of the view that the counter is still trading at an "attractive" price-to-revalued net asset value (P/RNAV) of 0.52 times on its reduced RNAV estimate, based on CDL's Aug 13 close. 

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"Management highlighted that it was encouraged by the resiliency of the Singapore residential market, and was able to adjust its prices slightly upwards for some of its projects.

"It was thus also not surprising that CDL announced the proposed redevelopment of its Fuji Xerox Towers and Central Mall properties," OCBC said, adding that these initiatives to unlock value would be supported by CDL's balance sheet strength.

Separately, CGS-CIMB has cut its FY20-FY21 earnings per share forecast for CDL by 11.4 per cent to 45.8 per cent to factor in continued losses from its global hospitality business. 

"While there are signs of some pick-up, any recovery in hotel performance is likely to be muted. Management guided that losses are expected to continue through year end and it would continue implementing cost-cutting strategies," CGS-CIMB analyst Lock Mun Yee wrote in a research note on Thursday. 

For the six months ended June 30, CDL's half-year net profit tanked to just S$3.1 million, from S$362 million a year ago, dragged by lower performance across its business segments due to the adverse impact of the Covid-19 pandemic.

Revenue for H1 2020 slipped 32.8 per cent to S$1.07 billion. There was also lower joint venture contributions with after-tax losses from its 51.01 per cent stake in Sincere Group, reduced one-off gains, as well as S$33.9m in impairment losses for eight hotels in the US, Europe and the UK.

No interim dividend was declared, versus a special interim dividend of six Singapore cents in the preceding year. 

Besides redeveloping Liang Court into a mixed-used integrated project, CDL is planning to redevelop Fuji Xerox Towers and Central Mall, though the latter two developments are still pending approvals from the authorities. 

Fuji Xerox Towers is likely to be redeveloped into a 51-storey mixed-use project with a floor area of 655,000 square feet (sq ft), while Central Mall is likely to be redeveloped into a mixed-use development with a floor area of about 240,000 sq ft, CGS-CIMB said.

In addition, CDL is also looking to divest its non-core hotels and China investment properties.

According to CGS-CIMB, CDL's balance sheet remains healthy, with net debt-to-equity ratio of 0.71 times, as well as cash and undrawn facilities of S$4 billion at the end of the half-year period.

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