• Maintain BUY and SGD7.30 TP, 40% upside and c.2% yield. 1H24 net profit missed expectations on lower development project recognition and higher costs. During the analyst briefing, management guided for a clear deleveraging path with an aim to lower gearing to <60% by 2025, which we see positively. Fund management and the living sector particularly are key areas of growth. Share price has underperformed mainly on low ROE concerns and index exclusion, but successful asset monetisation should help uplift returns and act as a catalyst.

• More divestments than acquisitions ahead in the near term. YTD, City Developments has achieved a portfolio divestment value of ~SGD271m mainly from sale of strata units at its various industrial and retail assets in Singapore at a good premium. Management acknowledged it is behind its SGD1bn divestment target set earlier this year. This is mainly due to buyers adopting a wait-and-watch approach, as well as requiring a longer lead time for decision making due to market uncertainties. Management guided that it is currently in discussion with several prospects on various large assets, but is not in a rush to offload assets cheaply considering the potential turn in rate cycle. For 1H24, acquisitions totalled SGD1.1bn, mainly from the acquisition of the Zion Road residential site and Hilton Paris Opera hotel. Overall net gearing as a result rose to 69% (4Q:61%).

• Resilient residential sales with two launches planned in 2H. YTD, the group and JV sold a total of 588 units with sales value of SGD1.2bn (1H23: SGD1.1bn). Overall, we estimate unbilled residential sales of >SGD4bn. It currently has a pipeline of five residential launches – two of which (Union Square Residences and Norwood Grand) are expected to be launched later this year. Demand is expected to be strong considering the lack of new launches in the sub market. CIT, along with four other JV partners, have also submitted two joint bids for the Jurong Lake District master developer site, the details of which will likely be announced in 2H24.

• Hospitality outlook remains positive but growth is tapering. CIT’s global hotel portfolio revenue per available room (RevPAR) rose +3% in 1H24, driven by strong Australasia performance and new acquisitions. For 2H24, the group expects RevPAR growth to remain positive at similar levels with its UK, France and Europe portfolios’ hotels expected to benefit from the Paris 2024 Olympics spillover demand.

• No changes to estimates as we expect a stronger 2H24 from development projects’ earnings recognition. CIT is showing good progress towards its environmental targets but we see room for improvement in governance and earnings transparency. Its ESG score of 3.3 results in a 4% ESG premium.

Source: RHB Research - 15 Aug 2024