CDL Hospitality Trusts - RHB Invest 2019-07-31: Positioning For The Future; Keep BUY


CDL Hospitality Trusts - Positioning For The Future; Keep BUY

  • Maintain BUY, Target Price rises by 1% to SGD1.79, 8% upside with 6% FY19F yield.
  • CDL HOSPITALITY TRUSTS (SGX:J85) remains our preferred hospitality pick. Its 2Q19 was largely in line, ex-impact of asset enhancement works. Despite a slightly dimmer demand outlook, benign hotel supply and addition of new attractions should still support Singapore’s hospitality sector.
  • Its overseas performance remains a mixed bag, with positives in some markets offsetting weakness in others. With major asset enhancements nearing completion, its performance should improve from 2020 onwards.

Expect a slightly better 2H19 for Singapore assets.

  • Management still expects a slight positive revenue per available room (RevPAR) growth for 2019, despite weaker corporate demand due to ongoing trade conflicts. RevPAR for July (28 days) rose 4.1% y-o-y on strong leisure visitor demand.
  • The key driver remains the benign hotel room supply outlook, at 1.3% pa (CAGR for 2019-2023), vs ~4% over the past five years which should help hoteliers regain some pricing power.
  • Overall, we moderate our RevPAR assumptions for 2019-2020 slightly to 1-3% from 3-7%, to reflect the anticipated weakness in demand from the corporate segment.

2020 Summer Olympics to drive hotel room demand in Japan; European assets’ performance remains steady.

  • Demand outlook for its Japan hotel rooms is positive, due to the upcoming Tokyo 2020 Olympics and Paralympics as well as the Rugby World Cup, which should offset pressures stemming from new room supply. RevPAR for all its European assets rose in 2Q despite macro-economic uncertainties, aided by a strong event calendar.
  • Looking ahead, growth in its German and Italian markets should remain positive, while its UK assets are likely to see some pressure from uncertainties stemming from Brexit and an increase in new supply. Its New Zealand and Australian assets are expected to chalk a steady performance.

Maldives – asset enhancements to be completed by end-2019.

  • RevPAR (2Q) for Angsana Velavaru improved by 13.9% y-o-y as management adopted a volume-centric strategy. Asset enhancement works commenced in 2Q, with the majority to be completed by year-end.
  • At Raffles Maldives Meradhoo, which has been closed for a major renovation and rebranding exercise, renovation works on its land villas were completed in May while that of its over-water villas will be done later this year. After this, the resort will fully open again. The higher resort rooms supply outlook is likely to be offset by a pick-up in demand, from growing inbound flights and the local government stepping up marketing efforts.


  • Gearing remains modest, at 35.2%, with a debt headroom of ~SGD0.5bn. Management still sees more opportunities in Europe for acquisitions due to favourable yield spreads (yields minus borrowing cost).

DPU and Target Price adjustments.

  • Our FY19F-21F DPU is lowered by 2-3% on the back of moderation in RevPAR growth.
  • We also trim COE assumptions by 20bps (in line with sector adjustments), resulting in a higher Target Price.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-07-31
SGX Stock Analyst Report BUY MAINTAIN BUY 1.79 UP 1.770