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Updated brokers' take: CDL seen poised for acquisitions, analysts raise target price


ARMED with a war chest of more than S$3 billion and an improved balance sheet, City Developments (CDL) is poised to make acquisitions in Singapore and overseas, prompting some analysts to raise the target price for the property group.

CDL is their preferred pick among property counters here for its asset monetisation ability, nimble capital management and acquisition potential.

"We expect City Developments to grow through acquisitions in 2017, with lowered net gearing of 16 per cent offering a sizeable war chest of over S$3 billion,'' said RHB Research Institute's analyst, Vijay Natarajan, who has raised his target price to S$10.50 a share from S$9.70 previously.

CityDev hit S$9.79 a share on Friday morning, and was trading around S$9.70, up 4 Singapore cents by 11:01am.

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On Thursday, CDL posted 40.6 per cent drop in fourth quarter net earnings to S$243.78 million. But this was given the absence of substantial gains booked for Q4 FY2015 from its second profit participation securities (PPS) platform. The latter involved the monetisation of three of the group's Singapore office properties.

OCBC Investment research analyst, Eli Lee, noted CDL's Q4 revenues rose 36.5 per cent from a year ago to S$1.2 billion, cumulating to a record S$3.9 billion for the whole of 2016, an increase of 18.2 per cent on year.

"Overall, we see this as a respectable set of results which came in broadly in line with expectations. Note that the group has also proposed, in addition to a final dividend of 4 Singapore cents per share, a special final dividend of 8 cents per share. This brings total dividends in 2016 to 16 cents per share,'' Mr Lee said. He has raised his fair value estimate for the stock to S$10.50 a share, from S$9.89 previously.

CDL's recurring income is expected to receive a boost, with South Beach becoming fully operational. Hotel operations should stabilise after a challenging 2016, Mr Natarajan said.

He also noted that CDL's diversification strategy of having S$5 billion of assets in five overseas markets (Australia, the UK, China, Japan and US) by 2018 is on track, with S$2.5 billion in acquisitions made so far. On the fund management side, CDL has built up a portfolio of S$3.5 billion via three profit participation securities (PPS) and is on target to achieve S$5 billion by 2018.

"We believe CDL can potentially form a PPS structure for its remaining high-end units, and in the medium term, monetise its South Beach project that has gross development value north of S$3 billion,'' he said.

DBS analysts too kept their buy call on CDL, underpinned by a strong pipeline of ready-to-launch projects this year. Their target price has been pegged at S$10.52 a share, up from S$9.90 previously.

Similarly, Deutsche Bank said CDL would look to focus on acquiring assets, continue to grow its funds management platform and invest in new economy platforms. It noted that CDL was exploring asset enhancement initiative for its existing office portfolio, which could unlock some value. Deutsche has a target price of S$10.80 a share for CDL.

Credit Suisse raised its target price to S$11.60 a share for CDL, from S$11.30 on the back of active rejuvenation of assets and capital recycling.

"While CDL has historically adopted a "buy & hold" approach, we believe the group continues to make progress in its shift towards active asset reconstitution to deliver higher shareholder returns,'' the research house said.

Credit Suisse is not ruling out potential privatisation of CDL's London-listed hotel arm, Millennium & Copthorne Hotels, given its attractive valuations and potential earnings accretion.