In a follow-up call on Oct 2, they see more room for optimism, as they believe the stock remains attractively priced at 0.69x P/BV, which is 1.1 s.d below the mean. Not only have they maintained their "overweight" call, they have raised their target price to $8.20 from $6.85 previously.
"With the majority of the board of directors now aligned with CEO, Sherman Kwek, he is in a better position to streamline CDL and close the discount to book through non-core asset sales.
"With 'value unlocking' becoming increasingly important in Singapore, CDL is a beneficiary of such thematic inflows," state the analysts.
Year to date, CDL has divested some $1.5 billion worth of assets, including its 50.1% stake in South Beach, which nets the company a gain of $465 million. In contrast, the company had spent just $1.2 billion on land purchases and other investments.
Potential non-core assets that could be sold include its UK land bank worth around $850 million, which has minimal earnings but is funded with “expensive” pound-denominated debt; Shoreditch House for £110 million also in the UK.
Quayside Isle @ Sentosa, another CDL asset, is up for sale at $111 million as well, which is above their valuation of $82 million.
Over the medium term, CDL intends to reduce net gearing, including fair value gains, from 70% to between high 50s to low 60s.
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However, Song and Khi figure that near-term gearing may not fall materially given the purchase of two executive condominium sites worth $614 million.
"We see asset sales as a key re-rating catalyst," they write.
Song and Khi expect CDL to potentially dish out special dividends at year-end from the proceeds and not just use the freed-up money to pare down debt.
As an indication, 25% of disposal gain from South Beach is equivalent to 13 cents per share, which may take payout for 2HFY2025 20 Scts, equivalent to around 2.9% yield.
Including a three-cent interim dividend already paid, CDL may pay out a total of 23 cents for FY2025, above consensus expectations of 15.5 cents.
CDL has in place a share buyback mandate. "While buybacks have yet to commence, management believes CIT’s share price remains undervalued," the analysts state.
In another positive aspect, CDL is set to be a "prime beneficiary" of rate cuts, given how 57% of its debt is on floating rates.
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According to JP Morgan, every 100bps drop in the cost of debt will help move CDL's core PATMI by 78% for FY2025 and 50% the following year.
Song and Khi calculate that interest tailwinds will help CDL's core PATMI recover from a FY2024 loss of $135.6 million to a return to the black of $85.4 million in FY2025, before further rising 57% y-o-y to S$213.6 million in FY2026.
Their new target price of $8.20 is based on a lower 35% discount to their estimate of CDL's RNAV of $12.65 per share, down from 40% applied previously on the slightly lower RNAV per share of $11.85.
CDL shares closed at $7.01 on Oct 2, up 1.15% and up 36.91% year to date.
