CDL Hospitality Trusts - RHB Invest 2018-12-14: Expect A Better 2019


CDL Hospitality Trusts - Expect A Better 2019

  • Maintain BUY, Target Price of SGD1.80 offers 18.4% upside and 6.5% FY19F yield.
  • CDL Hospitality Trusts (CDLHT)’s strategically-located Singapore hotels are well-positioned to tap into the ongoing recovery of Singapore’s hospitality sector. The performance of its Maldives resorts should see some recovery in 2019, post-completion of asset upgrades. Other overseas markets are expected to perform steadily, with weakness in some areas offset by strength in others.
  • Its balance sheet remains comfortable, with gearing of ~35%. We expect the REIT to acquire 1-2 assets in 2019.

Positive outlook for Singapore assets, slight disruptions expected from asset enhancements.

  • Demand ahead is likely to be driven by strong growth in leisure travellers, while the corporate segment has also been improving. The supply of new hotel rooms remains modest, with CAGR of 1.3% pa in 2018- 2020.
  • The renovation of Orchard Hotel rooms is likely to create some disruption – barring which, other hotels are expected to register a healthy performance. Overall, we expect a 3-7% revenue per available room (RevPAR) growth for 2019.

Maldives – better 2019 outlook.

  • CDL Hospitality Trusts’ two Maldives resorts performance has been impacted by a combination of factors which includes: higher room supply, slowdown in Chinese visitors and political changes. Its currently undertaking a major AEI on Dhevanafushi Maldives Luxury Resort (DMLR), which will be rebranded as Raffles Maldives Meradhoo Resort and is scheduled to open early Jan 2019.
  • Refurbishments are also planned for Angsana Velavaru Resort. The refurbished assets should boost the Maldives assets’ contributions to group numbers in 2019.

Other overseas markets.

  • The outlook for CDLHT’s German and Italy assets remains positive, on favourable dynamics. Meanwhile, its Japan, UK and Australia assets should record a relatively flattish performance despite some headwinds.

Still room for acquisition-led growth.

  • Post the recent acquisition of Hotel Cerretani Florence, CDLHT’s gearing remains modest at ~35%. This gives it over SGD200m in headroom for acquisitions (assuming 40% net gearing is a comfortable 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 surge in capital values has made yield-accretive acquisitions difficult to achieve.

BUY, DDM-derived Target Price of SGD1.80.

  • Our DDM is based on CoE of 7.4% (risk-free rate: 3%) and terminal growth rate of 2%.
  • Despite recent overseas acquisitions, CDLHT remains one of the most liquid proxies that offer exposure to the recovery in Singapore’s hospitality market.
  • Key risks are an unexpected slowdown in global growth impacting corporate demand, and a sharp spike in interest rates.

Vijay Natarajan RHB Securities Research | 2018-12-14
SGX Stock Analyst Report BUY MAINTAIN BUY 1.800 SAME 1.800

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