• Keep BUY and SGD7.30 TP, 39% upside. City Development’s 3Q operational update showed momentum picking up in Singapore’s residential sector and operational improvements across investment properties. The recent prime Shanghai residential site purchase is likely a calculated move on government policy stimulus and strength of tier-1 cities. Key concerns remain rising debt levels and slow capital recycling, which we believe is the key share price overhang despite trading at a hefty (c.60%) discount to RNAV.

• Singapore residential market sales gaining momentum. CDL’s new launch of Norwood Grand at Champion’s Way saw strong response, selling 84% of 348 units on launch weekend at an ASP of SGD2,067psf (margins likely in the mid- teens). Union Square Residences, its luxury new launch in Nov 2024, also saw a decent take-up of c.22% of 366 units at SGD3,200psf. Residential market activity has been showing a strong resurgence on better-than-expected economic growth and commencement of rate cuts, which augurs well for CDL in our view. We expect a similar strong response for its upcoming JV launch in Toa Payoh – The Orie – due to its location attributes, which should further boost CDL’s development property income. Overall, the group’s total 3Q sales value of SGD611m was nearly 2x that of last year’s, with an estimated unbilled sales value of c.SGD5bn.

• Acquisition of luxury mixed development in Shanghai. CDL and 51:49 partner Lianfa Group were awarded the tender for a mixed-use development site at Shanghai’s core Xintiandi area for CNY8.94bn (SGD1.66bn). This marks the former’s major re-entry into China since its failed Sincere Property Group investments. This time around, CDL is banking on its strong residential development capabilities and healthy demand for tier-1 cities despite overall market weakness – coupled with recent Chinese Government policy initiatives to prop up buying interest.

• Singapore office portfolio committed occupancy improved to 97.4% (from 93%), with the backfilling of vacancies at South Beach and higher occupancy at Republic Plaza – accompanied by posiitve rental reversions. Similarly, retail portfolio occupancy improved to 98.5% (2Q: 97.6%) – partially offset by weakness in UK and China commercial assets. The hospitality sector portfolio continues to perform well despite slight moderation in revenue per available room (RevPAR) growth in 3Q, with 9m RevPAR (+2.7% YoY) accompanied by higher gross operating profit margins of 33.9% (+0.4ppts).

• We trim FY25F-26F earnings by 3% and 6% by tweaking interest cost assumptions and factoring in higher debt. Key catalyst will be divestment of overseas assets (UK in partiulcar) to its fund management platform, which could uplift ROE. ESG score of 3.3 (out of 4.0) results in 4% ESG premium.

Source: RHB Securities Research - 27 Nov 2024