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Analysts positive on CDLHT despite uncertainties from coronavirus outbreak

Samantha Chiew
Samantha Chiew • 4 min read
Analysts positive on CDLHT despite uncertainties from coronavirus outbreak
CDL Hospitality Trusts (CDLHT) has been one of the REITs hit the hardest by the coronavirus outbreak. Since Jan 20, the counter has fallen 7.8%, and is currently trading at a 52-week low. Is it time to buy on the dip?
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SINGAPORE (Feb 3): Amid the coronavirus outbreak, units in CDL Hospitality Trusts (CDLHT) has shed about 13 cents since Jan 20 to trade at $1.53 on Monday. The stock is currently trading at a 52-week low.

However, some analysts feel that this is an opportunity to “buy” on the unit price’s dip.

DBS Group Research is keeping its “buy” recommendation with a lowered target price of $1.75.

In a Friday report, analyst Derek Tan says, “Sentiments amongst hospitality S-REITs remain cautious given the uncertainty of the coronavirus outbreak. We take comfort that CDLHT has diversified geographical exposure; Chinese tourists within CDLHT’s Singapore hotels are limited to just 10% of the total; and ample capacity to acquire.”

In the meantime, the trust’s undistributed divestment gains could help buffer DPU, amid the market selloff among the hospitality S-REITs, which is a knee-jerk reaction as Tan believes that the coronavirus is likely a short-term phenomenon.

“We remain comforted that the limited future supply, coupled with Singapore’s hosting of more events in 2020, will lift demand levels once this uncertainty clears, with a potential for RevPAR to grow 3-5% in 2020,” adds Tan. Additionally, Japan is expected to perform better due to the Tokyo Olympics and Raffles Maldives Meradhoo is likely to break even by 2022. Germany hotels will also be expecting a turnaround in 2H20, with a robust line-up of events.

Maybank Kim Eng shares similar sentiments as it also maintained its “buy” call with a lowered target price of $1.75. The research house is also keeping CDLHT its top hospitality REIT pick.

In its latest 4Q19 results, CDLHT recorded flat DPS of 2.77 cents. Recovery of its Singapore hotels gained momentum due to higher occupancy and as RevPAR rose 5.1% y-o-y, even as its overseas assets recorded weaker results.

See: CDL Hospitality Trusts posts flat 4Q DPS of 2.77 cents, FY2019 DPS dips 2.6%

In a Friday report, analyst Chua Su Tye says, “We pare back RevPAR growth to 3% y-o-y for 2020-2021, but we see its recovery gaining traction in 2020 due to stronger corporate demand.”

Although the analyst sees traction on RevPAR growth due to stronger corporate events calendar with the return of biennial events this year, a slower 3% y-o-y RevPAR has been factored in (from 5% y-o-y) given possible cancellations in 1H20 due to the coronavirus outbreak.

However, RHB Group Research is not as bullish as it is worried about the near-term uncertainties from the coronavirus outbreak. The research house has downgraded its call on CDLHT to “neutral” from “buy” with a lowered target price of $1.62.

In a Friday report, analyst Vijay Natarajan says, “We expect strong near-term headwinds for the Singapore hospitality sector due to the outbreak of Wuhan coronavirus with sharp slowdown in Chinese visitors expected. Amidst an uncertain near-term outlook, investors are likely to stay on the sidelines from hospitality-related stocks.”

Singapore has placed a travel ban on China tourist in an attempt to control the coronavirus outbreak. And since China is the biggest visitor arrival market with about 19% of Singapore’s visitor arrival, the hospitality industry players are expected to be hit hard.

“While China market accounts for only about 10% of its total SG revenue, we expect competition from other industry players to put pressure on its hotels RevPAR,” says Natarajan.

As for the trust’s overseas portfolio, Maldives is expected to be impacted from the slowdown in Chinese travellers and may only breakeven in 2021; and the market environment in New Zealand and UK remains to be competitive, limiting RevPAR growth; bit Japan and Germany hotels are expected to see healthy pick-up in 2H20 on key events. Australia and Italy hotels are likely to remain steady.

Nonetheless, the analyst believes that the overall impact to CDLHT's portfolio will be mitigated by its diversified exposure and master lease structures.

As at 3.00pm, units in CDLHT are trading at $1.53 or 1.0 times FY20 book with a dividend yield of 5.8%, according to RHB’s estimates.

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