CITY DEVELOPMENTS LIMITED (SGX:C09)
City Developments - Concerns Valid, But Likely Manageable
- Director resigns given disagreements over Sincere Property Group and Millennium & Copthorne Hotels Limited (M&C).
- Liquidity position at Sincere is challenging.
- City Developments's share price trading at trough P/B multiple.
CDL's Non-Executive Director resigns over internal disagreements
- City Developments announced announced on 21 Oct that its Non-Executive and Non-Independent Director, Mr Kwek Leng Peck, has given notice of his resignation. This was due to disagreements with the Board and management over City Developments’s investment in Sincere Property Group (Sincere) and ongoing provision of financial support to Sincere, coupled with City Developments’s approach in the management of Millennium & Copthorne Hotels Limited (M&C).
Concerns valid but not new, while situation likely manageable
- City Developments acknowledged in its announcement that the liquidity position at Sincere is challenging, given the impact of COVID-19 and property cooling measures in China such as the recent ‘Three Red Lines’ financing regulation. While City Developments has been looking to divest some of Sincere’s investment properties and hospitality assets, this has seen some delays given the current soft climate.
- We believe market concerns over Sincere are indeed valid, given the government’s increasing scrutiny on leverage in the real estate sector. However, we also note that China’s recovery from the pandemic remains firm, while City Developments had already taken some impairments on Sincere’s investment properties in its 1H20 results, which means that concerns over Sincere should be known by the market.
Lowering our Fair Value on higher gearing assumptions, but trading at trough valuations
- We are cognisant that this development would dampen investor’s sentiment in the near-term, and there could be further impairments ahead. However, with City Developments's share price trading at 0.60x FY20F P/B, this is even below the trough 0.62x P/B which City Developments traded at during the Global Financial Crisis.
- See City Developments Share Price; City Developments Target Price; City Developments Analyst Reports; City Developments Dividend History; City Developments Announcements; City Developments Latest News.
- Given the possibility of further financial support to Sincere, we increase our borrowings and net gearing assumptions, and ascribe a lower P/B target peg of 0.5x on Sincere (previously 0.6x) in our RNAV valuation model. Consequently, our fair value estimate for City Developments falls from S$9.65 (35% RNAV discount).
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-10-22
SGX Stock
Analyst Report
9.65
DOWN
10.740
