CDL Hospitality Trusts - CGS-CIMB Research 2018-11-29: Expecting Strong DPU Growth In FY19F


CDL Hospitality Trusts - Expecting Strong DPU Growth In FY19F

  • A weak FY18F due to one-off events.
  • We project 6.5% DPU growth in FY19F (vs. -5.4% in FY18F) due to completion of refurbishment works and recovery of Singapore RevPAR.
  • CDL Hospitality Trusts (CDLHT) is our subsector top pick for 2019F due to its stronger DPU growth (based on our estimates) and its status as the bellwether hospitality stock.

2018F weak due to one-off events

  • We expect CDL Hospitality Trusts (CDLHT) to post a weak FY18F. The Trump-Kim summit in Jun had an unexpected negative impact on its occupancy and its Orchard Hotel has been undergoing refurbishment since Jul (to be completed in 2Q19). Dhevanafushi Maldives Luxury Resort (DMLR) has also been closed from Jun 2018; it is slated to reopen in 4Q18F as Raffles Maldives Meradhoo Resort (RMMR), an ultra-luxury resort.
  • We think the above negative factors will offset the positive impact of full-year earnings contribution from The Lowry (UK) and Pullman Hotel (Munich, Germany) acquisitions.

2019F to be a better year

  • We think the company would deliver stronger DPU growth in FY19F than in FY18F, driven by the anticipated recovery of the hospitality sector in Singapore and the resumption of DPU growth at Orchard Hotel and RMMR. We believe 2H19F should be stronger than 1H19F as Orchard Hotel and Raffles Maldives Meradhoo Resort ramp up their businesses.
  • CDLHT has in the past five years cut its average room rate (ARR) to prop up occupancy. Its 9M18 ARR was at a similar level as in FY09, during the Global Financial Crisis. We expect higher occupancy for CDLHT going forward, and believe its revenue per available room (RevPAR) has bottomed.

Made maiden entry to Italy

  • As expected, CDLHT announced an acquisition recently. It is making its maiden entry into Italy by acquiring a 95% interest in Hotel Cerretani Florence for S$63.6m. We expect the deal to be accretive given the acquisition yield of 4.6% vs. the assumed funding cost of just 0.7%. We project this acquisition to contribute 1.5% to our FY19F NPI.
  • We understand that management is still actively looking for more acquisition opportunities. Any DPU accretive acquisition should serve as a re-rating catalyst.

The bellwether for Singapore’s hospitality stocks

  • CDLHT is a bellwether for Singapore’s hospitality stocks. Despite its weaker-than-expected 9M18 results, CDLHT's share price outperformed the hospitality REITs under our coverage and only underperformed the S-REIT index by ~2% pts .
  • CDLHT offers dividend yield of 6.3% slightly above its 5-year average and trading slightly below 1x P/BV which is its 5-year average. Our DDM-based Target Price rises as we roll forward our valuation.
  • Weaker-than-expected RevPAR from Singapore and Raffles Maldives Meradhoo Resort are downside risks to our ADD call.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | 2018-11-29
SGX Stock Analyst Report ADD MAINTAIN ADD 1.630 UP 1.56