CDL HOSPITALITY TRUSTS (SGX:J85)
CDL Hospitality Trusts - Growing Concerns Over COVID-19
- Rapid spread of COVID-19 to more than 120 countries.
- Growing pressure on RevPAR.
- Lower Fair Value estimate of S$1.09.
COVID-19 spread intensified
- COVID-19 is spreading rapidly across the countries. It now seems to be spreading much more rapidly outside China than within. As of 13 Mar, COVID-19 has spread to over 120 countries with more than 140,000 reported cases. Apart from China, the 3 countries with the highest number of confirmed cases are: Korea (8,086 cases), Italy (17,660 cases) and Iran (11,364 cases). Italy announced last week that the whole country is under lockdown amid soaring number of new cases and death tolls.
- At a media briefing, WHO declared COVID-19 a pandemic which means that we are likely to see higher transmission rate with more confirmed cases, and probably a prolonged outbreak.
Impact of COVID-19 could be larger than earlier expected
- On an industry average, the hotel’s occupancy rate in Singapore has dropped to ~30% in MTD March which saw a further decline from February’s occupancy rate of ~40%.
- Recall that during the SARS outbreak, visitor arrivals to Singapore fell 19.0% y-o-y and Singapore hotel’s RevPAR dropped ~19% y-o-y in 2003. However, given higher travel demand and higher contributions of Chinese tourists to Singapore’s tourism now, as well a potential longer outbreak, we are expecting the declines to be likely more severe than that of the SARS. Singapore Tourism Board (STB) estimated that the fall in tourist arrivals to Singapore could fall 25-30% in 2020.
- As we highlighted in our earlier report, Singapore is CDL Hospitality Trusts (SGX:J85)’s key and best performing market (~62.3% of FY19 NPI) whereby Chinese tourists contributed ~10% of CDL Hospitality Trusts’s Singapore business. With the escalation of COVID-19, we believe that CDL Hospitality Trusts’s performance could be badly hit with an estimated ~30-40% decline in RevPAR for CDL Hospitality Trusts’s Singapore hotels.
Adjusting DPU forecasts for FY20/21F down by 17%/3%
- Separately, CDL Hospitality Trusts’s hotels in Europe contributed ~18% of FY19 NPI, with 2% from Italy. As the situation continues to evolve rapidly in Europe, the hotels business would be heavily impacted. As compared with service residences, hotels could face a larger impact due to its shorter-stay profile and the focus on leisure travelers.
- In light of the impact of COVID-19, we adjust our DPU forecasts for FY20/21F down by 17%/3%, and increase our COE from 7.2% to 9.4%, while decreasing the terminal growth rate and risk-free rate from 2.0% to 1.55%.
- After adjustments, our fair value estimate decreases from S$1.62 to S$1.09. We hence downgrade CDL Hospitality Trusts from Buy to HOLD.
- See CDL Hospitality Trusts Share Price; CDL Hospitality Trusts Target Price; CDL Hospitality Trusts Analyst Reports; CDL Hospitality Trusts Dividend History; CDL Hospitality Trusts Announcements; CDL Hospitality Trusts Latest News.
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2020-03-16
SGX Stock
Analyst Report
1.09
DOWN
1.620
