Investors are too bearish on CityDev, say analysts

Its assets are grossly undervalued.

CityDev’s conservative stub value is reflecting investor over-pessimism, according to Maybank Kim Eng.

Excluding CityDev’s stake in Millennium & Copthorne, implied stub valuation of the company’s non-hotel business teeters too closely to levels last seen during the Global Financial Crisis.

Further, setting aside investment properties, the market appears to be valuing CityDev’s properties at a paltry $3.4b—this is 32% below the latest $5b book value for its development assets as of 30 September 2015.

“This is too pessimistic as it means major cost overruns or that unsold homes are marked to zero,” asserted the report.

Maybank Kim Eng posits that pre-sold homes already account for $2.4b revenue visibility over 2016 to end-2019. With its joint venture projects as well as development surplus, the report places CityDev’s development assets around $7.3b in FY15 and $6b in FY16.

Two main catalysts could spell a rebound for CityDev, though.

Firstly, the government may ease cooling measures in the upcoming year, which in turn could revive home sales and remove a critical overhang for companies like CityDev. Home sales could improve by upwards of 30% to nearly 800 units in 2016.

Secondly, CDL has several options for monetising assets. As it stands, CDL is already on the prowl for deals similar to the one it undertook in December 2014, in which it enjoyed a $331m boon by injecting Sentosa assets into Profit Participation Securities.

“We expect the market to take any progress positively as it would likely book significant gains on assets conservatively held at cost,” stated Maybank Kim Eng.

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