SINGAPORE (Mar 5): Phillip Capital is reiterating its “accumulate” recommendation on City Developments Limited (CDL) with a target price of $13.40.

The group on Feb 28 announced that its 4Q earnings dropped 23.4% y-o-y to $186.7 million, while FY17 earnings was 17.6% lower at $583.2 million.

Revenue for the quarter increased by 13.8% y-o-y to $1.3 billion, while FY17 revenue remained flat at $3.8 billion.

Despite the absence of new residential launches in FY17, the group managed to record a 55% y-o-y jump in residential home sales value sold for 2017, on the back of a 36% increase in total transaction volumes across the island in 2017.

The buoyant sales have led to a healthy drawdown of residential inventory, with 178 units remaining for sale as at end FY17

In a Monday report, analyst Dehong Tan says, “The group’s four successful site acquisitions since 2017, Tampines Ave 10/Handy Road/West Coast Vale/Amber Park will boost total inventory in the pipeline to 2,750 residential units.”

Although the group’s net gearing ratio of 9% as at end-FY17 is its record lowest, its strong cash reserves of $4.0 billion will allow it to capitalise on attractive opportunities globally.

In China, the group saw a slowdown in residential sales, with its largest development, Hong Leong City Centre (HLCC) selling only 348 units compared to 535 last year, due to a slowdown in momentum after the initial launch of the project phases and ongoing cooling measures in the country.

Nonetheless, the project is still a healthy 86% sold, with total sales amounting to RMB 3.53 billion ($733.7 million).

On the outlook, the group’s residential segment has improved on the back of its successful acquisitions of the four sites in 2017, in view of its dwindling inventory.

The group came up with a new route map to a US$5 billion ($6.59 million) target AUM for its Fund Management segment which will create a new business division and revenue stream by 2023 to improve ROE in the medium term.

‘We roll our forecasts forward to FY18e and adjust our ASP assumptions for Singapore residential projects upwards by 5-10% in view of the upcycle in prices which is already taking place for primary and secondary transactions,” says Tan.

As at 12.30pm, shares in CDL are trading 22 cents lower at $12.47 or 1.2 times FY18 book with a dividend yield of 2.1%.

This story, written by Samantha Chiew for The Edge Singapore, first appeared on March 5.