Brokers maintain ‘buy’ calls on CDL after strategic review despite 10% share drop
Citi Research, DBS Group Research, RHB and CGS International have kept their ‘buy’ or ‘add’ ratings on CDL after the developer unveiled a three-year roadmap. The plan targets S$6 billion in asset sales and S$5 billion in new investments, though shares have fallen about 10% since the announcement.
Citi Research, DBS Group Research and RHB have all maintained their “buy” ratings on CDL, with target prices of S$11.53, S$12 and S$11.20, respectively. CGS International has likewise kept its “add” call and S$12.11 target, even as CDL’s shares have dropped about 10 per cent since the Singapore-listed property developer unveiled the outcome of its strategic review earlier this week. The stock closed at S$7.39 on Wednesday.
Under a three-year roadmap announced on Monday, CDL plans to raise S$6 billion from the sale of commercial properties and some hotels while deploying S$5 billion in new investments across Singapore, China, Japan and other markets. Group CEO Sherman Kwek said the asset-sale target was a “floor, not a ceiling,” suggesting the firm could pursue further disposals. CDL also plans to set up a dedicated fund-management entity and leadership team with the aim of doubling its assets under management to S$10 billion by 2029.
Other measurable targets include more than S$1 billion in profit attributable to shareholders from disposal gains, an annual dividend payout ratio of at least 35 per cent of reported net profit and a reduction in net gearing to about 55 per cent by 2029. “For over six decades, CDL has built a strong and diversified real estate and hospitality portfolio supported by deep capabilities and quality assets,” executive chairman Kwek Leng Beng said in a press release. “The Strategic Review builds on these strengths, while sharpening our priorities and setting a clear direction for the Group.”
Analysts cited by The Business Times pointed to several areas of concern raised by investors, including potential earnings dilution from divestments and the lack of return on equity targets and clarity on its hospitality portfolio, China asset allocation strategy and execution risks. “Nonetheless, we think most of these concerns are addressable, and concrete evidence of CDL executing some of the … key initiatives ahead should be a key catalyst,” Citi Research’s Brandon Lee said.
Raymond Yap and Tan Jie Hui, analysts at CGS International, said the income lost from selling mature assets could be offset by the removal of losses from underperforming assets and savings on interest costs. “We view CDL’s target to reduce its net gearing by 20 percentage points to 55% as good news as it is a more sustainable level for the developer,” Yap wrote in a note cited by Forbes. DBS Group Research analyst Tabitha Foo said CDL’s “much clearer value unlocking roadmap” should be welcomed by investors, and that its execution should be closely watched.
CDL is one of Singapore’s biggest property developers. It posted a 230.7 per cent year-on-year surge in net profit to S$301.6 million on revenues of S$2.72 billion, up 61.1 per cent, for the first half of this year. The Kweks ranked second on Forbes’ Singapore rich list in early September with an estimated combined net worth of US$16.1 billion.
