CIMB Research 2015-07-30: CDL Hospitality Trust - Disappointing 2Q. Downgrade to HOLD.

Disappointing 2Q 

  • CDL-HT’s 2Q15 results were below our estimate, with revenue coming in at 21% and DPU at 19% of our full-year forecasts. 
  • Looking ahead, with expected prolonged weakness within the Singapore hotel segment, forex pressure, rising interest payments and more-than-previously-expected upcoming supply of hotel rooms, we have lower our FY15-17 DPU estimates by 11.2-12.6%. 
  • Consequently, we downgrade CDL-HT from add to Hold with a lower DDM-based target price of S$1.62

Weak set of results 

  • CDL Hospitality Trust (CDL-HT) posted a weak set of 2Q15 results with NPI rising by 0.9% yoy while DPU dipped by 10.0% yoy. 
  • The weak results were mainly attributed to 
    1. weak performance of its Singapore hotels, 
    2. lower fixed rent contribution from Australia and New Zealand due to the weakening of AU$ and NZ$, and 
    3. higher interest expense as the fixed rate tenure was lengthened coupled with higher borrowings. 

Gloomy outlook 

  • Overall, CDL-HT’s hotels’ performance was weak across the portfolio with the exception of its Japan assets, where RevPAR rose by 29.1% yoy on the back of strong visitor arrivals. 
  • However, earnings from the Japan hotels were not included in this quarter’s distribution as earnings will only be recognised in 4Q15. 
  • Including these earnings, this quarter’s DPU would have dipped by 7-8% yoy instead. 
  • During the briefing, management highlighted its Singapore hotels’ July RevPAR remained weak (down c.4.2% yoy) while the supply of hotel rooms in 2015 enlarged to 7.7% yoy as a result of the early opening (expected in 4Q15) of the 1,500 rooms Hotel Boss (mid-tier). 
  • Though not a direct competitor, we believe that the increased supply of rooms in a sluggish tourist market will result in keener competition, which in turn could push room rates down further as hotel owners fight for market share. 

Cut DPU forecast and downgrade to Hold 

  • In our view, the hospitality landscape will remain competitive in the near term on the back of continually sluggish visitor arrival rates, weak foreign currencies, and more-than-expected supply of hotel rooms in 2015. 
  • We cut our FY15-17 DPU forecasts by 11.2%-12.6%, and downgrade CDL-HT from add to Hold. 

(PANG Ti Wee; LOCK Mun Yee; TAN Xuan, CFA)

Source: http://research.itradecimb.com/