CDL Hospitality Trust - CIMB Research 2015-12-09: Weak Singapore & Maldives priced in

CDL HOSPITALITY TRUSTS CDLHT J85.SI

CDL Hospitality Trust - Weak Singapore & Maldives priced in

A mixed bag: Singapore, ANZ and Maldives continue to be weak.
But offset by growth in Japan and new income from Hilton Cambridge.
Offering investors a dividend yield of 8%, we believe that weakness in Singapore and Maldives has been priced in.
Maintain Add with unchanged DDM-based TP.

CDL-HT reported a 2.6% yoy decline in NPI (S$99.2m) for 9M15 as maiden income from Japan hotels, higher NPI from Maldives (US$ strength) and increased rental income from Claymore Connect were eroded by weak demand in Singapore and ANZ (Australia New Zealand) as well as a one-off trust expense from the acquisition of the Cambridge City Hotel in the UK.

Singapore hotel operating conditions remain challenging, with 9M15 RevPAR sliding 6.4% yoy to S$176. While occupancy remained resilient, averaging 88.2%, room rates remained soft on new supply and weaker corporate demand (-6.1% yoy to S$199).
On a qoq basis, we believe that we could have seen some stabilisation as 3Q15 was 4.6% higher qoq. Management guided that Oct RevPar was 1.4% higher yoy. Claymore Connect is now 81% occupied and is expected to deliver steady recurrent income.

Overseas contributions have been and will likely continue to be affected by FX volatility. Weakness in the resources sector will continue to weigh on demand at hotels in Australia (its 9M15 NPI is down 10% yoy).
Maldives hotels reported an 18.3% decline in RevPAR and are likely to remain adversely affected by slower tourist arrivals due to the slowdown in Chinese luxury travel and weakening of the Russian rouble. The underlying weakness in Maldives was only offset by the strong US dollar (its 9M15 NPI rose 6% yoy).

Japan hotels experienced a 30.9% jump in RevPAR in 3Q and the strong foreign tourist arrival outlook will continue to underpin the upbeat performance in the country. Maiden contributions from Cambridge City Hotel UK will be felt in 4Q15.
CDL-HT plans to rebrand this hotel into the Hilton Cambridge in Dec 2015 and we anticipate this to further boost the hotel’s trading performance. The hotel was purchased at an annualised 1H15 NPI yield of c.5.6%, with scope to increase 6-7% post a recent AEI.

Offering investors a dividend yield of 8%/8.4% for FY15/16, we believe that underlying weakness in Singapore and Maldives has been priced in.
A stronger-than-expected performance from Japan and contribution from Hilton Cambridge could catalyse the stock.
We maintain our Add call with an unchanged DDM-based target price S$1.59.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.59 Same 1.59