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Analysts mixed over CDLHT as it posts weaker 3Q20 results

Lim Hui Jie
Lim Hui Jie • 3 min read
Analysts mixed over CDLHT as it posts weaker 3Q20 results
Maybank Kim Eng has maintained their "hold" call, while RHB Group Research has maintained their "buy" call on CDLHT.
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Analysts from Maybank and RHB Group Research have maintained their “hold” and “buy” calls on CDL Hospitality Trust (CDLHT) respectively, after the REIT announced its lower net property income (NPI) declined 57.4% y-o-y in 3QFY2020.

See: CDL Hospitality Trusts reports 57.4% drop in 3Q NPI to $15.2 mil

Maybank Kim Eng analyst Chua Su Tye maintained his target price of 95 cents on CDLHT, and noted that while NPI rose 49% q-o-q with a reopening of its UK and Italy hotels, transient demand for isolation business in Singapore and New Zealand is set to ease in 1Q2021.

Revenues per available room (RevPARs) have also fallen 23-84% y-o-y in 9MFY2020, and demand recovery into FY2021 remains weak with a re-imposition of lockdowns in Europe.

Chua said occupancy in Singapore excluding W Hotel rose 2.6 percentage points y-o-y to 90.2% with extended demand from government agencies for dedicated isolation facilities and from foreign workers impacted by border closures. As such, RevPAR fell 60.9% y-o-y to $64 from a 61.5% y-o-y decline in average daily room rate (ADR).

Revenue and NPI for its Singapore hotels fell 39.2% y-o-y and 58.1% y-o-y in 3QFY2020, although the W Hotel has seen good traction from staycation demand, and management expects to raise ADR by 20-25% from Dec. That said, Chua thinks near term upside and occupancies will be capped by safe distancing rules.

He also noted CDLHT’s overseas hotels were weaker, and NPIs decreased in places like Japan, with borders closed and its Tokyo hotels initially excluded from the domestic ‘Go To Travel’ tourism campaign, the UK, which reopened following mandatory closures in 2Q20, and Germany and Italy, as impairment charges of $2.4 million against rent receivables continued to be recognised.

On the other hand, NPI for its Australian hotels was largely cushioned by a fixed rent structure from its master leases, while NPI rose 70.5% YoY in New Zealand as the government’s managed isolation business was extended.

RHB Group Research’s Vijay Natarajan is more positive on the counter, giving a target price of 99 cents.

He believes CDLHT’s Singapore business shows potential for a recovery, saying the republic has done fairly well so far and has been gradually opening up its borders.

Natarajan said his base case assumption is a recovery in 2HFY2021 with ten vaccines currently in advanced stages, and added “most of the negatives are priced in with a vaccine announcement likely to act as key share price catalyst.”

He says the 4Q outlook for Singapore hotels is set to further improve QoQ with management seeing a strong staycation demand (especially for newly acquired W Hotel) and with four of its remaining five hotels booked by Government as dedicated isolation facilities.

“The government contract extends until early 2021, and the implementation of air-travel bubbles with Hong Kong and opening up of borders with China, Vietnam, New Zealand and Brunei is “also positive for the Singapore hospitality sector.” he notes.

In addition, Natarajan has called the divestment of Novotel Brisbane in Australia for A$67.9 million ($66.4 million) timely. The selling price is at a 7% discount to its book value but at a 0.5% premium to its latest valuation.

This is as the master lease is set to expire in April 2021, and proceeds from this sale will reduce the Trust’s gearing from 36.7 to 35%.

As at 12.02pm, shares of CDLHT were trading at $1.00, with a FY20 price to book ratio of 0.7 and dividend yield of 4%

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