Would Benjamin Graham Buy City Development Limited?

City Development Limited (SGX: C09), often known simply as CDL, is one of the largest property developers and hospitality corporations in Singapore and Asia. The international property and hotel conglomerate is involved in real estate development and investment, hotel ownership and management, facilities management and the provision of hospitality solutions.

The company has a decent earnings yield of around 7%. But that only translates into a meagre dividend yield of 1.2%. This is below the market average and only half the yield from a risk free investment such as the 10-year US Treasury. As a property developer rather than a REIT, CDL is not obliged to pay out 90% of its income as dividends to investors.

Also unlikely to stir much interest amongst value investors is a price-to-earnings ratio of 15. That is above the market average of 14 and also not especially low when compared to CDL’s historical valuations. Last year, the P/E ratio was a more appealing 12.9.

Interestingly though, CDL does perform well on some measures of value. The price to book ratio is almost one. This suggest that investors could recover their investment if, in the worst case, the company went bust. Not that something like that is even remotely likely.

Perhaps more interestingly, the market value of the company, currently around S$8.5b is less than its net current asset value S$10b. Around S$3b of this is in the form of cash or cash equivalents.

This, along with a current ratio of nearly three, illustrates the strength of CDLs balance sheet. With plenty of cash behind the company it would seem that CDL could be a very safe investment.

Looking to the future, CDL possesses one of the largest land banks amongst private developers in Singapore. The 2.4 million square feet of land that the company owns has the potential to be developed into nearly eight million square feet of gross floor area.

CDL is a safe investment thanks to an enviable balance sheet and the prospect of growth through its land bank. But that is unlikely to be something that Benjamin Graham would value.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.