Aging Demographics And Tight Regulations Will Curb Prospects

Key Takeaways

• Demographic changes, remote work trends, and regulatory pressures threaten demand, pricing power, and revenue growth across key property segments and geographies.
  
• High exposure to mature markets and rising compliance costs increase risk of earnings instability, margin compression, and financial strain during market downturns.
  
• Diversification across asset classes, global markets, and recurring income streams, combined with active capital management and ESG focus, drives resilient earnings and long-term growth potential.

Catalysts

City Developments Limited (CDL) is a leading global real estate company with a network spanning 168 locations in 29 countries and regions.

• City Developments faces long-term headwinds from changing demographics, with aging populations and declining household formation rates threatening to suppress demand for both residential and commercial properties across core and new markets, likely resulting in structurally weaker revenue growth for years ahead.
  
• Heightening regulatory intervention, such as property market cooling measures, higher additional buyer's stamp duties, and stricter lending rules in Singapore and China, is expected to constrain transaction volumes and cap property price appreciation, directly limiting top-line expansion and development margins.
  
• The persistent shift towards remote and hybrid work arrangements risks driving down long-term demand for traditional office space and certain hospitality assets, eroding occupancy rates and rental income, and leaving City Developments' investment properties exposed to rental yield compression and increased vacancy risk.
  
• Intensifying regulatory requirements for sustainability and tightening global ESG standards are likely to impose escalating compliance and retrofitting costs, challenging City Developments' ability to allocate capital efficiently, with a probable squeeze on operating margins and returns on investment.
  
• Ongoing overexposure to mature and saturated markets, combined with high group gearing-currently at 70 percent and only expected to decline gradually-significantly elevates the risk profile in the case of economic downturns or interest rate volatility, heightening the likelihood of earnings volatility, margin pressure, and potential balance sheet stress.

City Developments Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on City Developments compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming City Developments's revenue will grow by 7.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.7% today to 8.2% in 3 years time.
• The bearish analysts expect earnings to reach SGD 348.9 million (and earnings per share of SGD 0.4) by about August 2028, up from SGD 194.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.7x on those 2028 earnings, down from 30.4x today. This future PE is greater than the current PE for the SG Real Estate industry at 15.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.83%, as per the Simply Wall St company report.

City Developments Future Earnings Per Share Growth

Risks

• Continued urbanization and population growth in Asia-Pacific, especially in Singapore and other emerging markets, is driving strong demand for residential and commercial developments, as evidenced by robust sales numbers, high occupancy rates, and sustained asset value growth-directly supporting City Developments' ability to grow revenues and maintain high occupancy levels.
  
• Expansion and diversification into recurring income streams such as the global living sector (multifamily and student accommodation assets in Japan and the UK), hospitality operations, and third-party fund management (REITs and private funds) is boosting stable, recurring cash flows and helping to offset cyclical property development income, thus supporting net margins and earnings resilience.
  
• The company's commitment to ESG leadership and sustainable building practices is not only improving its brand appeal and long-term competitiveness, but also opening access to green financing and premium pricing, which are likely to sustain strong net margins and could enhance valuation multiples in the long run.
  
• Active and disciplined capital recycling-selling mature or non-core assets and redeploying capital into higher-yielding opportunities, as well as notable success in net divestments-provides financial flexibility for new investments and share buybacks, helping manage gearing and supporting future earnings while enabling the company to reward shareholders through special dividends and share repurchases.
  
• Strategic international diversification into higher-growth geographies and different asset classes, including planned hotel portfolio expansion and a pipeline of projects in China, UK, Japan, and Australia, helps smooth earnings volatility and provides multiple growth drivers, underlining potential for sustained long-term revenue and profit growth.

Valuation

• The assumed bearish price target for City Developments is SGD4.8, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of City Developments's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SGD9.01, and the most bearish reporting a price target of just SGD4.8.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SGD4.3 billion, earnings will come to SGD348.9 million, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 10.8%.
• Given the current share price of SGD6.62, the bearish analyst price target of SGD4.8 is 37.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.