City Developments - DBS Research 2020-08-06: Too Cheap To Ignore

CITY DEVELOPMENTS LIMITED (SGX:C09)

City Developments - Too Cheap To Ignore

City Developments is now positioned for potential recovery despite COVID-19’s significant impact on its earnings.
Potential silver lining should the government provide additional support to developers.
Trading close to -1.5SD, valuation is too cheap to ignore as we position for recovery.

We maintain our BUY rating on City Developments (SGX:C09) but lower our Target Price to S$10.50 from S$13.00 previously. Our Target Price implies a 0.9x price/net asset value (P/NAV), close to its 5-year -1 standard deviation (SD).
Although the COVID-19 pandemic has impacted most of City Developments’s business segments especially the hospitality sector, its current share price has priced in most of the downside risks.
Currently trading at 0.7x P/NAV, close to -1.5 SD of its 5-year historical trading band, we believe valuations are too cheap to ignore as City Developments is positioned for recovery post-COVID reopening.

While the market does not expect the government to relax its property measures, the government may consider providing additional support to developers should the economy recover slower than expected and unemployment increase substantially.

Following the profit warning released by City Developments, we lower our FY20F / FY21F estimates substantially by 23- 75%, recognising some of the guided declines in contributions from property development and investment properties and losses from the hospitality sector. However, we have yet to include any potential impairment and negative goodwill from the acquisition of Sincere Property.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-08-06

SGX Stock Analyst Report BUY MAINTAIN BUY 10.500 DOWN 13.00