Mervin Song and Terence Khi of JP Morgan are the latest to turn positive on this stock. In their July 15 note, they upgraded CDL from “neutral” to “overweight” and increased their target price to $6.85 from $4.85.
“We believe the desire to repair reputations and CDL’s share price should galvanise CDL to be more proactive in executing a monetisation and deleveraging plan going forward, despite bumps along the way,” state Song and Khi.
Their report was published on the same day CDL announced the resignation of independent director Philip Yeo from the board. Yeo, the 78-year-old former chairman of the Economic Development Board, was notably on the side of executive chairman Kwek Leng Beng in the dispute.
Besides issuing a strongly-worded statement in the thick of the war of words to support chairman Kwek, Yeo spoke out at CDL’s subsequent annual general meeting (AGM) when the opposing factions had supposedly agreed to put things behind them and move on.
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From Song and Khi’s perspective, the election of two others IDs at the AGM, whose appointments had previously sparked internal conflict, along with the re-election of three supportive IDs and retirement of Yeo, who opposed these directors, means group CEO Sherman Kwek is now in a better position to streamline CDL’s business and close the discount to book value through the sale of non-core assets.
“We believe CDL’s board and management are motivated to repair their reputations following the earlier dispute, with a recovering share price being the best approach,” state the JP Morgan analysts.
They base their thesis on other recent developments. On June 4, CDL announced the sale of its 50.1% stake in the South Beach integrated development to joint venture partner IOI Properties Group.
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According to the analysts, CDL was previously reluctant to let go of this asset but has since sold it, allowing it to channel the proceeds into paying down debt. This, according to Song and Khi, is another sign of CDL’s commitment to enhancing shareholder value.
CDL will book a gain on the disposal of some $465 million in the current FY2025 and use the proceeds to pay down debt. According to CDL, the net gearing ratio is expected to drop from 117% to 103% following the sale.
The JP Morgan analysts believe further non-core sales are on the way to sustain improved sentiment and act as positive share price catalysts.
They suggest that the former Stag Brewery site in Mortlake, London, which recently received planning approval, is a possibility. This asset was acquired for GBP 158 million in 2015. Due to the weakening GBP, the Singapore dollar equivalent has decreased from $335 million to $274 million.
“The divestment will help reduce gearing, demonstrate CDL’s book value, and boost profitability, as the landbank generates zero income and allows CDL to repay more expensive GBP debt,” the analysts say. Other non-core assets include commercial strata title units and less well-positioned lodging assets.
In the previous FY2024, CDL’s bottom line was weighed by project delays and higher borrowing costs. This year, Song and Khi expect CDL to book more earnings from the full recognition of revenue from residential projects, such as Copen Grand Executive Condominium, which is achieving TOP status.
If the three-month Singapore overnight rate average or Sora remains at around 2% this year, down from the average of 3.55% in 2024, CDL is estimated to enjoy reduced financing costs and therefore an earnings boost.
Along with the gain from the sale of the South Beach stake, Song and Khi estimate that CDL’s FY2025 and FY2026 patmi will reach $610 million and $223 million, respectively.
“Given better prospects of asset monetisation and settlement of family disputes, we reduce our holdco discount to 40% from 60%, and raise our June 2026 price target to $6.85 from $4.85, based on a revised net asset value of $11.45, trimmed from $12.10.”
