CFA Society Singapore
SINGAPORE (Jan 30): Analysts are keeping a positive stance on CDL Hospitality Trusts (CDL HT) following Tuesday results announcement.
The managers of CDL HT, a stapled group comprising CDL REIT and CDL Hospitality Business Trust, posted a 2.1% decline in 4Q18 distribution per stapled security (DPS) to 2.77 cents from 2.83 cents in 4Q17.
The DPS decline was mainly attributed to the absence of contribution from three properties – two Brisbane hotels divested in Jan 2018, and the Dhevanafushi Maldives Luxury Resort, which has been closed since June 2018 for renovations as it rebrands to Raffles Maldives Meradhoo (RMM).
Revenue for the quarter dropped 5.4% to $52.3 million from $55.2 million a year ago. Net property income (NPI) also dropped 5.4% y-o-y to $38.4 million.
Maybank Kim Eng has a “buy” call on CDL HT with a target price of $1.80. The research house also has CDL HT as its top sector pick.
In 4Q18, Singapore’s hotels’ revenue was up by 1.6% y-o-y, while NPI was up 3.3% y-o-y, led by stronger occupancies.
In a Tuesday report, analyst Chua Su Tye says, “We see further improvement in its Singapore NPI to be led by stronger demand fundamentals – 11M18 tourism growth at +6.6% y-o-y is ahead of the +6.4% y-o-y in 2017 and Singapore hotel room occupancy has jumped to between 83% and 92%, the strongest showing since 2013.”
Elsewhere, revenue per available room (RevPAR) growth was stronger in Germany at +24.2% y-o-y and Japan at +7.3% YoY, on the back of growth in tourist arrivals.
However, revenue and NPI in Australia fell 33.4% y-o-y with the divestment of its two Brisbane hotels and a weaker AUD. Revenue for UK hotels was flat, while NPI dropped 19.2% y-o-y, on one-off operating expenses.
Meanwhile, RHB Research has kept its “buy” rating on CDL HT with a target price of $1.80, with the counter also being its top hospitality pick.
In a Wednesday report analyst Vijay Natarajan says, “Over the next three years, we expect a 4% CAGR DPU growth, backed by a positive outlook for Singapore and European hotels and a recovery of performance in the Maldives.”
The analyst expects a 3.7% growth for Singapore Hotel RevPAR in 2019-2020, on the back of favourable demand-supply dynamics. But some disruption is expected at the Orchard hotel in 1H19 due to upgrading works.
Hotel supply is expected to grow at a low CAGR of 1.5% from 2018-2021.
Leisure demand is also expected to continue its healthy growth supported by an increase in airline capacity and more attractions.
Contribution from resorts in the Maldives is expected to improve from 2Q19, with the renovation completion of RMM in early 2Q19. The new resort is expected to command a 20-30% increase in room rates.
In addition, management plans for a soft refurbishment of Angsana Velavaru, to strengthen product offering and market positioning.
Outlook for its Japan and European hotels (UK, Germany and Italy) remains positive, on the back of a better events calendar, despite supply growth. Australia is also expected to see a stable performance, while the performance in New Zealand is expected to moderate, after a strong growth in past years.
Similarly, DBS Group Research is also reiterating its “buy” recommendation on CDL HT with a target price of $1.85.
In a Wednesday report, analyst Mervin Song says, “We believe the projected upturn in the overall Singapore hospitality market, with RevPAR to grow by 3-5% per annum over the next few years should drive CDL HT’s share price higher.”
Along with the trust’s recent acquisitions, its DPU CAGR should be 3% between 2018 and 2021.
According to Song, consensus has a lower target price of about $1.70, but this implies that the trust’s portfolio is valued about $700,000 per key, below asking prices for hotel in Singapore which are in excess of $1 million per key.
“With a potential upturn in the Singapore market over the next three years, this is too conservative in our view. Thus, given the quality of its properties, CDREIT should rerate closer to our TP which implies price per key of about $800,000 or 1.2x P/B,” says Song.
Going forward, future accretive acquisitions will act at the counter’s re-rating catalyst.
“We continue to recommend investors position themselves in CDL HT to the expected multi-year upturn in the Singapore hospitality market which is further supplemented with expected growth from its Japanese operations and expansion into Italy,” adds Song.
As at 11.38am, units in CDL HT are trading 1.87% higher at $1.63 or 1.0 times FY19F book with a dividend yield of 6.1%.