City Developments shares slip after heavy 2020 losses
City Developments Limited (CDL) hopes to unlock ‘deep value’ in its hotels, and has written off most of its Sincere Property investment.
- City Developments Limited (SGX: C09) share price drops 2% to S$7.36 per share
- It reported a S$1.9 billion full-year loss and impaired 93% of a China investment
- Analysts mostly kept their ‘buy’ ratings, with their targets averaging S$9.51
- Trade CDL shares, long or short, with an IG account
CDL FY2020: Deep in the red
CDL’s share price stumbled on Friday (26 February), closing 2% lower at S$7.36 on 4.7 million shares, weighed down by its first full-year loss in almost 50 years.
Net loss was a massive S$1.9 billion for 2020, in contrast to a profit of S$564.6 million in 2019.
The key reason was CDL’s one-off S$1.78 billion impairment on its investment in China-based Sincere Property Group. That was about 93% of its total investment in Sincere.
It also booked S$99.5 million impairment losses for its hotels and investment properties.
The board on Friday recommended a final dividend of S$0.08 per share and a special final dividend of S$0.04 per share.
Are CDL's hotels on a recovery path?
Revenue tumbled 38.5% to S$2.1 billion last year. The hotel operations segment accounted for most of this decline, suffering from the prolonged adverse impact of the Covid-19 pandemic.
Nonetheless, CDL sees ‘deep value’ in the assets of Millennium & Copthorne Hotels (M&C), which was privatised in November 2019. CDL said it will review the subsidiary’s portfolio holistically, now that it is wholly owned.
Citi analyst Brandon Lee said the outlook for the hospitality sector is brightening, with CDL’s management accelerating efforts to unlock the hotels’ value.
Amid minimal inbound business, occupancies in most of its Singapore and New Zealand hotels were partially mitigated by government quarantine business and local government contracts for isolation programmes, respectively.
In North Asia, CDL’s hotels have seen demand starting to recover in domestic and retail markets, as cities gradually lift their travel restrictions, the group said.
What’s on the cards for CDL?
With CDL striking an optimistic note, analysts remain bullish. Fifteen research teams rated it ‘buy’ while two had ‘hold’ calls; none recommended ‘sell’. Their average 12-month target price was S$9.51, implying 29% upside based on Friday’s closing share price.
CDL’s near-term focus is on lightening its debt load on investment properties and shoring up its residential development plans. Its asset divestment plans take a longer time than previously intended.
Citi maintained its ‘buy’ call, citing a residential upturn, the potential Reit for UK commercial assets, and recovery for the hospitality arm. Lee believes there may be a negative impact on CDL’s share price on the results miss, but this could be mitigated by the company’s valuations.
Besides, a full write-off of the Sincere equity investment suggests that the worst is over, with the recent acquisition of a Shenzhen technology park a sign of liquidity support, Lee said.
However, Bloomberg Intelligence analysts foresee the company possibly facing ‘a long road ahead’ in repairing Sincere’s balance sheet. They added that the potential return in Sincere’s recovery may also be distant, seeing as the Chinese firm has a weak land bank, sales and profitability.
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