CDL Hospitality Trusts - OCBC Investment 2020-11-20: Some Light At The End Of The Tunnel

CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - Some Light At The End Of The Tunnel

As a recap, CDL Hospitality Trusts (SGX:J85)’s 3Q20 results remained soft, but performance improved on a q-o-q basis on the back of easing travel restrictions, reopening of temporarily closed hotels, support from government for isolation business and bookings from foreign workers affected by border closures.
In general, CDL Hospitality Trusts’s Singapore hotels performed better than its overseas hotels. All of CDL Hospitality Trusts’s hotels with the exception of Raffles Maldives Meradhoo which were closed in 1H have reopened in 3Q.

CDL Hospitality Trusts' share price performance has been boosted by rapid vaccine progress from companies such as Pfizer and BioNTech’s resounding success in its final trial results, Moderna’s 94.5% effective vaccine and AstraZeneca and Oxford University’s potential COVID-19 vaccine etc.
It was also reported by US Health and Human Services Secretary that COVID-19 vaccines from Pfizer and Moderna could be ready for US authorisation and distribution within weeks. This could set the stage for vaccine inoculation to begin as early as Dec 2020 and could further grow the confidence and drive the recovery of CDL Hospitality Trusts' share price, in our view.

As at 19 Nov’s close, CDL Hospitality Trusts is trading at 0.82x forward P/B which is almost 1 s.d. below its historical mean of 0.95x. We find valuations undemanding, especially given the positive vaccine development. While we still see headwinds from Europe (18% of FY19 NPI) with the resurgence of COVID-19 cases, the reopening of borders and easing travel restrictions in Singapore (62% of FY19 NPI) amid a stabilised COVID-19 situation could provide some buffer.
Positive vaccine development could drive the recovery of international travel which would benefit Singapore given its lack of domestic market.
We revise our CDL Hospitality Trusts's DPU forecasts up by 3-5% for FY20-24F. We also lower our cost of equity assumption to 7.5% and increase our terminal growth rate from 1.25% to 1.5% on improved sentiment and outlook. Our fair value estimate for CDL Hospitality Trusts hence increases from S$0.98 to S$1.39.
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.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-11-20

SGX Stock Analyst Report BUY UPGRADE HOLD 1.39 UP 0.980