CDL Hospitality Trust - CIMB Research 2016-07-15: Still-challenging 2016 is a harbinger for share price performance to mean-revert

CDL Hospitality Trust - CIMB Research 2016-07-15: Still-challenging 2016 is a harbinger for share price performance to mean-revert CDL HOSPITALITY TRUSTS CDLHT J85.SI 

CDL Hospitality Trust - Still-challenging 2016 is a harbinger for share price performance to mean-revert

  • Among our coverage, we expect CDREIT to post a weaker performance than its peers in 2Q16. Our FY16 DPU is 5% below Street’s.
  • Disconnect between visitor arrivals & SG hotels’ performance.
  • We expect Maldives to earn only slightly above its base rents. UK will be the sole bright spark.
  • We have reworked our model; we trim our FY17F-18F DPU but increase our TP on lower Rf assumptions (from 2.9% to 2.2%).



Unjustified share price performance

  • In terms of operations, CDREIT is set to underperform its peers, in our view. However, its YTD share price performance (+12.5%) has outperformed FSTREI (+9%) and the average of our coverage (+7%). 
  • On the cusp of a disappointing 2Q16 performance – we forecast a DPU of 2.18 Scts (-2% qoq; -3% yoy) – we expect near-term weakness in its share price. 
  • We believe that the market has fully valued CDREIT’s longer-term recovery, which is why its share price is near our fundamental DDM-based target price.


Disconnect between visitor arrivals & SG hotels’ performance

  • We think that the +13% yoy rebound in visitor arrivals in 5M16 and hunt for yield post- Brexit drove CDREIT’s outperformance. However, we reiterate our view that that the quality of visitor arrivals and decline in length of stay offset the positivity coming through.
  • Industry RevPAR has dipped 0.8% yoy in 5M16. We are forecasting industry RevPAR to decline by 1.6% yoy in 2016. We now project CDREIT to post an 8% decline in RevPAR for 2016. Comparatively, we expect FEHT to halt the slide in its RevPAR.


Maldives to remain challenging

  • We expect the weakness in the Maldives to persist. Afflicted by the weaker appetite for luxury markets as well as relative strength of US$ against currencies of its major source markets, especially Rmb, euro and ruble, the Maldives resorts recorded a 29% yoy decline in RevPAR in 1Q16. As a result, we forecast a 9% yoy decline in NPI for the Maldives, and expect the resorts to just earn slightly above their respective base rents.


UK to be the sole bright spark

  • On the other hand, we expect the UK’s NPI to jump by more than two-fold as the full- year contribution from Hilton Cambridge City (acquired in 01 Oct 2015) comes through. 
  • We also expect an 18% yoy growth in RevPAR thanks to a bump up in ADR (as a result of refurbishment).


Maintain Hold on CDREIT; expect near-term share price weakness

  • We maintain Hold on CDREIT as we believe that the market has fully priced in its longer-term recovery prospects. 
  • Reflecting the drop in Singapore 10-year bond yield, we lower our Rf assumptions (from 2.9% to 2.2%), which pushes up our DDM-target price (S$1.46). 
  • Nearer-term, however, we foresee weakness in CDREIT’s share price on the back of an anemic performance in 2Q16. 
  • Assuming that CDREIT could trade between 6.7-7.1% forward yields, there could be potential near-term 5-10% downside from current levels.




YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-07-15
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.46 Up 1.38


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