SINGAPORE RHB is keeping City Developments (CDL) at buy with a higher target price of $11.30, from $10.50 previously, despite the property developer's share price having already climbed 23.6% year-to-date.
Despite a share price outperformance, CDL remains our preferred pick for its asset monetisation ability, nimble capital management and acquisition potential," says RHB analyst Vijay Natarajan in a Thursday report.
In addition, CDL's residential projects in Singapore have seen a pick-up in sales momentum following a policy relaxation in the city-state.The government earlier this month announced minor tweaks to the property cooling measures by way of a reduction of Seller's Stamp Duties (SSD) and changes to the Total Debt Servicing Ratio (TDSR).
Singapore also aligned the stamp duties for transactions by residential property-holding entities (PHEs).Significant owners of PHEs will now be subject to the usual stamp duties when they transfer equity interest in such entities, similar to if they were to buy or sell the properties directly.
According to Natarajan, CDL saw a healthy take-up of residential units across its Singapore projects over the weekend, with the majority of the 20 units sold coming from its mass to mid-range projects.
This is in line with our view that residential volumes are to see a near-term pick-up as more marginal buyers enter the market, says Natarajan.CDL is expected to launch two more projects - New Futura and South Beach Residences - in the second half of this year.
In addition, CDL could have more room for acquisitions ahead due to its strong balance sheet.According to Natarajan, CDL's net gearing has improved to 16% as at FY16, compared to 26% a year ago. Assuming a comfortable gearing level of 50%, this would give CDL debt headroom of over $3 billion.
In 2017, CDL has so far deployed a total of $304 million for the acquisition of a 24% equity stake in China's co-working space operator Distrii, a UK residential site, and a commercial project in Shanghai, says Natarajan.
We expect management to continue this acquisition spree (likely in Singapore, Japan and UK markets), capitalising on current market opportunities, he adds.As at 12.07pm, shares of CDL are trading 4 cents lower at $10.19.
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