CDL HOSPITALITY TRUSTS - OCBC Investment 2017-07-31: More Growth To Come, But Price Not Compelling

CDL HOSPITALITY TRUSTS - OCBC Investment 2017-07-31: More Growth To Come, But Price Not Compelling CDL HOSPITALITY TRUSTS J85.SI

CDL HOSPITALITY TRUSTS - More Growth To Come, But Price Not Compelling

  • 2Q17 DPU falls 3.7% YoY.
  • Cost of equity lowered to 7.5%.
  • FV increases to S$1.525.

2Q results within expectations 

  • CDL Hospitality Trusts' (CDLHT) results were in line with expectations.
  • 2Q17 gross revenue increased 12.7% YoY to S$47.8m, boosted by the inorganic contribution from The Lowry Hotel, which was acquired on 4 May 2017, as well as stronger contributions from the New Zealand (NZ) hotel. The NZ hotel posted a spectacular 49.0% YoY surge in 2Q17 RevPAR, boosted by a strong tourism market as well as sporting events.
  • Singapore NPI increased 4.9%, mainly due to a strong performance by Claymore Connect. 
  • Among the other geographies in CDLHT’s portfolio, the Maldives and Japan posted YoY declines in 2Q17 NPI as both face pricing pressures from an increase in hotel room supply. 
  • Total distribution to Stapled Security holders in 2Q17 increased 12.6% to S$24.9m while DPU dropped 3.7% YoY to 2.08 S cents or 22.8% of our initial full-year forecast. 
  • 1H17 DPU came to 4.10 S cents or 44.9% of our initial full-year forecast.

SG hotel room supply injection pushed back 

  • CDLHT's Singapore RevPAR remained largely resilient in 2Q17, dipping only by 1.4% YoY. We note that according to Horwath (as quoted in CDLHT’s presentation), Singapore hotel room supply is expected to grow +4.0% in 2017, down from the +5.9% projection revealed last quarter. 
  • In 2018, the room supply is expected to grow +1.7%, up from the previous +0.1% forecast. While we think this may put a slight damper on the RevPAR rebound we expect in 2018, we note that corporate demand seems to be stabilizing.

Trading at 5.7% FY17F yield 

  • We are slightly more positive on the outlook for CDLHT’s Singapore hotels this year, and adjust our beta downward. As a result, our cost of equity drops from 7.7% to 7.5%. After adjustments, our fair value increases from S$1.48 to S$1.525. 
  • Going forward, the NZ hotel as well as the recent acquisitions are projected to bolster CDLHT’s DPU growth in 2H17. Despite these positive DPU drivers, we believe unit prices could be more attractive. 
  • Note that CDLHT is currently trading at a FY17F yield of 5.7% and a FY18F yield of 6.4%. Maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-07-31
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.525 Up 1.480