CDL Hospitality Trusts - OCBC Investment 2016-10-31: Top pick within hospitality

CDL Hospitality Trusts - OCBC Investment 2016-10-31: Top pick within hospitality CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trusts - Top pick within hospitality

  • Geographical diversification a plus.
  • FV drops to S$1.48.
  • Maintain BUY.

3Q16 results in line with expectations 

  • While the trading conditions in Singapore continue to be soft, CDL Hospitality Trusts (CDLHT) managed to post a 3.4% YoY increase for its 3Q16 DPU of 2.44 S cents. 
  • 3Q gross revenue jumped 10.5% YoY to S$45.4m, and NPI correspondingly increased 5.3% YoY to S$34.8m. This growth was contributed by the inorganic contribution from UK, an improved performance from New Zealand, and a boost from positive earnings translation for Australia and Japan. 
  • Partially offsetting these were lower contributions from Singapore and Maldives. 
  • CDLHT’s results were in line with expectations: 9M16 revenue and DPU make up 74% and 72% of our current full-year forecast, respectively.

Singapore hotels report 7.5% drop in RevPAR 

  • 3Q16 RevPAR for CDLHT’s Singapore hotels dropped 7.2% YoY to S$168 on the back of a 7.5% drop in the ADR to S$186 which was partially offset by a 0.5 ppt increase in AOR to 90.7%. 
  • CDLHT highlighted a slight slowdown in bookings in September, which they attributed to travel advisories issued against Singapore following the Zika outbreak. As expected, the RevPAR drop of 7.5% was less than the 9.2% decline seen in 2Q16, while Zika’s impact on bookings was limited. 
  • Oversupply continues to be a worry, with hotel room supply expected to increase 4.1% in 2016, and a further 6.1% in 2017 according to Horwath HTL.

Lowered fair value 

  • Given the uncertainties plaguing the financial and economic environment, we expect continued weakness in corporate demand for Singapore hotels into the first half of 2017. 
  • We have pushed back our expectations for a RevPAR recovery till late 2017 or 2018, when the growth in hotel room supply tapers off. 
  • After the fine- tuning of our assumptions for FY17 growth in CDLHT’s various geographical markets, our fair value drops slightly from S$1.53 to S$1.48. 
  • Our cost of equity assumption remains at 7.5%. CDLHT’s gearing stands at 36.7%, giving them a debt headroom of S$382m. 
  • Against last week’s price of S$1.325, CDLHT is trading at a blended FY16/17 forecasted yield of 7.1%. 
  • We maintain our BUY rating on CDLHT with an updated fair value of S$1.48.

Deborah Ong OCBC Investment | 2016-10-31
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.48 Down 1.530