CDL Hospitality Trusts - RHB Invest 2018-01-29: Riding On The Recovery Of The Hospitality Sector

CDL Hospitality Trusts - RHB Invest 2018-01-29: Riding On The Recovery Of The Hospitality Sector CDL HOSPITALITY TRUSTS J85.SI

CDL Hospitality Trusts - Riding On The Recovery Of The Hospitality Sector

  • CDL Hospitality Trusts (CDLHT)’s Singapore hotel RevPAR (4Q17) turned positive after 12 consecutive quarters of decline, signalling the onset of recovery. 
  • The hospitality sector’s outlook for 2018 looks promising – aided by lower hotel supply, a pick-up in corporate demand and an increase in demand from visitors. 
  • In its overseas unit, the better performance anticipated from its New Zealand and Europe hotels would be partially offset by weakness in assets in the Maldives and Japan. 
  • With a strengthened balance sheet, CDLHT is well-positioned for more acquisition led-growth. Maintain BUY, with a revised Target Price of SGD1.95 (from SGD 1.70, 7% upside).

Singapore hotel sector picks up pace.

  • CDL Hospitality Trusts’ (CDLHT) revenue/available room (RevPAR) from its Singapore hotels turned positive (+1% y-o-y) in 4Q17, after 12 quarters of decline – signalling a recovery in the hospitality market. 
  • Its outlook for 2018 is positive, with RevPAR expected to rebound by 3-7% on the back of the drivers listed in the following paragraph.

Visitor arrivals are estimated to increase by 4-7% in 2018. 

  • Meanwhile, corporate demand is expected to grow on the back of an increase in the number of events. Last, the supply of new hotel rooms is anticipated to decrease (room supply CAGR for 2017-2020F: 1.4% vs 5.3% in 2014-2017).

New Zealand another key growth driver. 

  • Grand Millennium Auckland’s FY17 net property income (NPI) surged 46.3% y-o-y on the back of a favourable new master lease structure and surge in RevPAR (+25.9% y-o-y). 
  • For FY18, we expect a lower mid-single digit growth in NPI, due to a high base effect and higher local taxes.

Acquisition-led growth. 

  • CDL Hospitality Trusts (CDLHT) completed the Mercure Brisbane and Ibis Brisbane divestments on 11 Jan for AUD77m (with a 10% premium over their latest valuations). Management noted that the divestment was an opportunistic move to unlock value from mature assets. 
  • Post divestment and rights issue, net gearing remains low at ~32%, presenting > SGD300m in headroom for acquisitions (assuming 40% as a comfortable gearing level). Management said the European hotel market remains attractive, due to relatively higher yields and low interest rates. 
  • While Singapore remains its preferred market, the recent surge in capital values has made yield-accretive acquisitions challenging.

Other overseas market updates. 

  • CDL Hospitality Trusts (CDLHT) expects its hotels in the UK and Germany to perform steadily due to continued visitor growth. However, the outlook for its resorts in the Maldives and hotels in Japan is expected to remain weak, due to increased competition from new supply. 
  • Asset enhancement works are now ongoing for its resorts in the Maldives, hotels in Japan and Orchard Hotel, in order to enhance their competitiveness.


  • We tweak our FY18F-19F DPU by -1% and 2% respectively to reflect recent divestments and stronger recovery. In our DDM model, we lower our cost of equity (CoE) by 40bps to 7.2%, and lift the TG rate to 2% (from 1.5%), as we now expect a multi-year recovery for Singapore’s hospitality market.
  • Despite recent overseas acquisitions, CDL Hospitality Trusts (CDLHT) remains one of the most liquid proxies that offer exposure to the Singaporean hospitality market recovery.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2018-01-29
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.95 Up 1.700