UOB Kay Hian
14 August 2025

City Developments Ltd (CDL): Divestment Momentum Drives Upgrade Amid Operational Headwinds

Overview: A Strategic Shift Powers Upward Revision

City Developments Ltd (CDL), a leading global real estate operating company with a diverse portfolio spanning residences, offices, hotels, serviced apartments, integrated developments, and shopping malls, is in the spotlight following a decisive strategic pivot. UOB Kay Hian has upgraded its rating on CDL to BUY, raising the target price to S\$8.50, reflecting a substantial 25% upside from the current share price of S\$6.80. This re-rating comes after a robust first-half performance in 2025, underpinned by aggressive divestment activity that offset operational headwinds in other segments.

Key Investment Highlights

• Buy Rating Upgraded: Target Price increased from S\$4.60 to S\$8.50, implying a 25% upside.
• Strong Divestment Activity: Divestment proceeds exceeded expectations, earmarked for a special dividend in February 2026.
• Operational Challenges: Profitability impacted by forex losses and higher interest costs, but core property development surged on strong Singapore sales.
• Resilient Portfolio: Stable recurring income from investment properties supports balance sheet stability despite high gearing levels.
• Leadership Stability: Kwek family succession uncertainty appears resolved, refocusing management on execution and shareholder value.

CDL Stock Snapshot

1H25 Financial Performance: Divestments Lead the Way

CDL reported 1H25 revenue of S\$1.7 billion, up 8% year-on-year, primarily driven by asset divestments in the UK and China. Gross profit remained stable at S\$692 million, while EBITDA jumped 21% to S\$551 million. However, profit after tax and minority interests (PATMI) slipped 4% year-on-year to S\$91 million due to significant forex losses and higher interest expenses. Adjusting for forex, PATMI would have reached S\$154.3 million, indicating the underlying strength of core operations.

• Interim Dividend: S\$0.02 per share, doubled from S\$0.01 in 1H24.
• PATMI Margin: 5.4%, slightly lower due to non-operational losses.
• Gross Profit Margin: 41.0%, down from 44.3%.

Segmental Review: Contrasting Fortunes

Property Development: The Star Performer

• Pre-tax profit soared to S\$152 million on robust residential sales in Singapore, including The Orie (92% sold), Norwood Grand, and Union Square Residences.
• Full profit recognition from Copen Grand EC and contributions from JV projects like Tembusu Grand.
• Ongoing landbank replenishment (e.g., Lakeside Drive GLS site) ensures a healthy future pipeline of approximately 2,260 units.
• Favourable interest rates and strong sales underpin expectations for 2026 earnings growth.

Hotels: Challenging Environment, Signs of Stabilization

• Revenue fell 1.5% year-on-year; pre-tax loss of S\$84 million.
• Significant forex losses and weaker Singapore trading, with declines in room occupancy, average room rate, RevPAR, and gross operating profit (GOP).
• Other global geographies, especially Australasia and the Rest of UK/Europe, offset some weakness, resulting in modest RevPAR growth of 0.5% year-on-year.
• GOP margins contracted by 2.1 percentage points to 29.6% amid cost inflation and renovation disruptions, notably at M Social New York Downtown.

Investment Properties: Solid Income, Temporary Setback

• Portfolio occupancy remains robust: 97% in Singapore office and retail, 85.1% in UK commercial, over 90% in UK/Japan living sector.
• Pre-tax profit fell 30% to S\$76 million due to lower divestment gains and net forex losses.
• Over S\$1.5 billion in contracted divestments year-to-date fuels further capital recycling and serves as an earnings catalyst.

Financial Overview and Key Metrics

Balance Sheet: Gearing Remains Elevated, But Divestments Provide Relief

• Net gearing stood at 70% at end-1H25 (118% excluding fair value of investment properties), reflecting recent aggressive Government Land Sales (GLS) bids.
• Total cash declined from S\$2.8 billion at end-2024 to S\$1.8 billion as at end-1H25.
• Planned divestments over the next 6-12 months are expected to stabilize the balance sheet and potentially reduce net debt.

Earnings Revision and Forecasts

• 2025F earnings were lowered by 48% to reflect forex losses and higher interest expenses. Estimates for 2026 and 2027 remain unchanged.
• Consensus net profit for 2025 is S\$350 million, with UOB Kay Hian estimates at S\$205 million.

Valuation: Re-rating Reflects Improved Clarity and RNAV Upside

• Target price of S\$8.50 is pegged to 0.8x P/B (above the five-year average of 0.7x), representing a 33% discount to the assessed RNAV of S\$12.70/share.
• CDL’s disclosed RNAV (including fair value of hotel and investment property portfolio) is S\$19.77/share.

Leadership and Governance: Succession Issue Resolved

• The prior HOLD rating was influenced by uncertainty stemming from the Kwek family leadership tussle, which could have impacted strategy, governance, and shareholder value.
• Recent developments, including the resignation of long-serving board member Philip Yeo and signs of family reconciliation, indicate renewed management focus on executing CDL’s divestment and capital recycling strategy.

Share Price Catalysts

• Ongoing progress in divesting and recycling capital from non-core or non-strategic assets.
• Potential for special dividends with the usage of divestment proceeds.

Debt Maturity Profile

Conclusion: A Value-Driven Recovery Play

City Developments Ltd is navigating a dynamic market landscape through accelerated portfolio optimization, strategic divestments, and management stability. While forex and interest cost headwinds remain, the company’s robust property development pipeline, healthy asset recycling, and leadership clarity underpin its long-term investment appeal. With a compelling valuation and the prospect of special dividends, CDL stands out as a high-potential opportunity for investors seeking exposure to the region’s real estate sector.