CDL Hospitality Trusts - OCBC Investment 2016-01-29: Subdued quarter, but valuations attractive

CDL HOSPITALITY TRUSTS CDLHT J85.SI

CDL Hospitality Trusts: Subdued quarter, but valuations attractive

 4Q15 DPU fell 3.8% YoY

 Outlook remains uncertain

 See value at current price level

CDL Hospitality Trusts (CDLHT) reported its 4Q15 results which came in within our expectations.

Although gross revenue rose 11.1% YoY to S$50.1m, NPI and DPU fell 2.2% and 3.8% to S$37.8m and 3.01 S cents, respectively.
CDLHT’s performance was impacted by continued softness in the tourism industry here, as its Singapore hotels’ RevPAR dipped 7.0% YoY to S$172. This was in turn driven by a YoY fall in both occupancy (-3.5 ppt to 86.5%) and average room rate (-2.9% to S$199).
The overall double-digit YoY revenue increase was driven largely by the maiden contribution from its Hilton Cambridge City Centre Hotel, which was acquired on 1 Oct 2015.
We expect this hotel to be the main growth driver for CDLHT in 2016, given a full-year of contribution and healthy RevPAR growth following the completion of its refurbishment (4Q15 RevPAR jumped 20.8% YoY).
For FY15, CDLHT’s gross revenue increased 3.4% to S$172.4m, and was 0.7% higher than our full-year forecast.
DPU of 10.06 S cents represented a decline of 8.4%, but was ahead of our projection by 2.2%.

Looking ahead, CDLHT remains cautious on the outlook of its portfolio hotels given the uncertain macroeconomic landscape.
Although 2016 will see the return of biennial events to Singapore such as the Singapore Airshow and new events such as the HSBC World Rugby Sevens Series, the projected 6.4% increase in new supply (~3,930 rooms) will likely exert downward pressure on industry room rates, in our view.
Maldives is also expected to remain challenging, while UK, Japan and New Zealand are expected to perform well.

We fine-tune our assumptions after inputting this latest set of full-year figures in our model.
Our FY16 DPU forecast is lowered slightly by 0.4%. Rolling forward our valuations, we derive a lower fair value estimate of S$1.38 (previously S$1.41). However, we are keeping our BUY rating on CDLHT, as we see value at current price level.
The stock offers FY16F distribution yield of 8.0%, which comes in at two standard deviations above its average 5-year mean of 6.7%.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-01-29

OCBC Securities Analyst Report BUY Maintain BUY 1.38 Down 1.41