RHB upgrades CDL to ‘buy’, raises its target price on residential strength, asset divestments

[SINGAPORE] RHB has upgraded City Developments Limited (CDL) to “buy” from “neutral”, citing a strong momentum in Singapore’s residential property market, the developer’s renewed focus on asset divestments and other factors.

RHB also raised its target price for the stock significantly – to S$8.50 from S$4.90. That represents an 18 per cent upside from its last close of S$7.20 on Tuesday (Nov 18).

According to the report released on Wednesday, CDL’s share price has rebounded from its lows in April.

“We see legs in the current rally, driven by the positive outlook for the Singapore real estate sector, (CDL’s) renewed focus on asset divestments, and government policy measures supporting deep value plays (thereby mitigating earlier corporate governance lapses),” the report said.

RHB analyst Vijay Natarajan noted that, despite the recent rally, the counter is still trading at a discount of about 50 per cent to its revalued net asset value (RNAV).

Asset recycling unlocks value

A central pillar of the upgrade is CDL’s active capital-recycling strategy. Divestments have remained a “key priority” for the group, the report noted.

Significant recent transactions include the South Beach integrated development, where CDL completed the divestment of a 50.1 per cent stake for a net gain of S$465 million in September.

It divested Piccadilly Galleria for S$65.5 million in November, and has put up Quayside Isle @ Sentosa for sale for S$111 million, with negotiations under way with potential buyers.

Consequently, CDL’s net gearing – including fair value on investment properties – has improved, dipping to 69 per cent from 70 per cent in the second quarter of 2025. The group also maintains a healthy interest cover of four times, up from 2.4 times in the first half of the year.

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CDL is also a key beneficiary of falling interest rates, Natarajan said. As at H1 2025, only 43 per cent of its debt is on fixed interest rates, and about 73 per cent of its debt is due for refinancing by 2027.

Local residential market strength

Beyond divestments, CDL is capitalising on the resilience of the local property market. Since June, the developer has acquired three residential sites: Lakeside Drive in Jurong and two executive condominium (EC) sites in Woodlands and Senja Close. These acquisitions add more than 1,300 units to its development pipeline.

The analyst highlighted the strong performance of recent launches, noting that the 706-unit Zyon Grand, of which CDL holds a 50 per cent stake, saw 84 per cent of its units sold during the launch weekend at an average of S$3,050 per square foot. This was a figure “well above” expectations, the analyst said.

RHB expects stable margins of 10 to 15 per cent for these projects, viewing the pivot towards the EC segment as a move to increase earnings stability.

Financial outlook

While global hotel revenue per available room dipped slightly by 0.3 per cent in the first nine months of 2025 due to weakness in the Singapore market, the outlook for the hospitality segment is turning positive for FY2026, RHB said. This optimism is driven by an improving demand outlook on the back of a stronger event calendar pipeline, and the fact that the bulk of the hotel supply is now behind the market.

RHB has adjusted its core net profit forecasts for FY2025 to FY2027 upwards by 5 to 8 per cent, factoring in better operational performance and lower interest costs.

The revised target price of S$8.50 is based on a narrowed RNAV discount of 40 per cent (previously 65 per cent), reflecting the improved outlook for the real estate sector and the declining interest rate environment.

The target price also includes a 2 per cent environmental, social and governance discount. The analyst noted that, while CDL has excellent environmental scores, corporate governance lapses remain a concern for investors.

Meanwhile, OCBC maintains its “hold” rating on CDL, with a higher fair value estimate of S$7.49. It notes the absence of new launches in Q3, leading to a 49 per cent fall in sales value to S$313.2 million.

“CDL has been proactive in reconstituting its portfolio to unlock value for shareholders, such as the divestment of assets at a premium to their book values and redeveloping some of its older commercial properties in Singapore,” OCBC said.

However, it added that the uncertain global economic outlook and impact of policy tightening measures rolled out previously could be potential dampeners to investor sentiment.