CDL Hospitality Trusts - CGS-CIMB Research 2020-07-20: A Profit Warning


CDL Hospitality Trusts - A Profit Warning

  • CDL Hospitality Trusts expects 1H20F DPU to decline 60-70% y-o-y.
  • We cut FY20-22F DPU by 22-35% to factor in larger declines in RevPAR.
  • Reiterate ADD, with a lower Target Price of S$1.20. The market appears to have priced in the potential downsides.

CDLHT's 1H20 DPU could decline 60-70% y-o-y

  • CDL Hospitality Trusts (SGX:J85)’s overseas operations are either closed on a temporary basis or operating at low occupancy rates except for its hotel in New Zealand. The occupancy rates of its Singapore and New Zealand hotels have been supported by isolation demand. Singapore hotel occupancy is also supported by demand from foreign workers affected by border closures.
  • Management guided that while sentiment points to a start of a recovery in international travel demand in 2021, the situation remains fluid and there are much uncertainties on the recovery trajectory.
  • CDL Hospitality Trusts guided that
    • income available for distribution (after retention) in 1H20 would be down 60-70% y-o-y,
    • DPU (after retention) for 1H20 would decline 60-70% y-o-y from 4.16 Scts last year, and
    • 1H20 total return after tax would be a marginally negative.
  • See CDL Hospitality Trusts Announcements.
  • The last part includes the one-off winding down costs arising from the divestment of Novotel Singapore Clarke Quay which was completed in Jul. Excluding this, CDL Hospitality Trusts would register a slight profit, it said.

Most country borders remain closed; FY20F will be a weak year

  • With the borders of most countries still closed to most foreigners, CDL Hospitality Trusts would have to rely mostly on domestic demand. In 2019, Singapore, New Zealand and UK accounted for ~79% of its revenue. With Covid-19 cases under control so far in these countries, CDL Hospitality Trusts could at least tap into the domestic demand there.
  • We estimate that about 38% of CDL Hospitality Trusts's NPI in 2019 were from master lease income. However, the NPI from master lease income could be offset by the potential operating losses incurred by hotels under management contract. Our FY20F NPI forecast assumes 84% contribution from master leases.

CDLHT's FY20-22F DPU cut by 16-36%; reiterate ADD

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-21
SGX Stock Analyst Report ADD MAINTAIN ADD 1.20 DOWN 1.310