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CGS-CIMB and RHB downgrade CDL Hospitality Trusts to 'hold' due to slower-than-expected recovery

Felicia Tan
Felicia Tan2/1/2021 06:37 PM GMT+08  • 3 min read
CGS-CIMB and RHB downgrade CDL Hospitality Trusts to 'hold' due to slower-than-expected recovery
Despite the downgrade, CGS-CIMB and RHB have upped and maintained their target price estimates to $1.24 and at $1.25 respectively.
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Analysts from CGS-CIMB Research and RHB Group Research have downgraded their calls on CDL Hospitality Trusts (CDLHT) to “hold” and “neutral” respectively from “add” and “buy”.

Despite the downgrade, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee have increased their target price estimate to $1.24 from $1.16 previously, as they believe the trust’s recovery remains “volatile” and that its valuation has recovered back to the near five-year mean of 0.97 times price to book value (P/BV).

Eing and Lock have also raised their distribution per unit (DPU) estimate for FY2021-2022 by 6-15% mainly to factor in capital distribution.

“CDLHT has undistributed capital of around $60 million and we believe it will top up to buffer the impact of Covid-19,” they write in a report dated Jan 29.

CDLHT, on Jan 29, reported distribution per share (DPS) of 3.44 cents for the 2HFY2020 ended December, down 29.2% from DPS of 4.86 cents in 2HFY2019.

To Eing and Lock, the lower DPS came in above their expectations at 140% of their full-year forecast, due to the capital distribution of $20 million.

“Going forward, recovery is expected to remain volatile. While Singapore and New Zealand (55% of FY2020 net property income or NPI collectively) are likely to be supported by isolation business for most of FY2021, the resurgence of Covid-19 cases continues to affect the recovery of hotels in Japan, UK and Italy (19% of FY2020 NPI collectively),” they note.

“Master lease with Australian hotels (8% of FY2020 NPI) will expire in April 2021 and it is likely to be converted into variable rent. A restructuring of the rental agreement with the lessee of the German Hotel (8.6% of NPI) is also ongoing. Portfolio valuation on a same-store-basis fell 5.1% y-o-y,” they add.

RHB analyst Vijay Natarajan has maintained his target price of $1.25 despite the recommendation downgrade as CDLHT’s FY2020 results were broadly in line with his expectations.

Recovery, however, will be slightly slower than expected due to the resurgence in Covid-19 cases in many parts of Europe and Asia, which has resulted in the deferment of the opening of international borders.

That said, Natarajan sees that the positives are now mostly priced in the trust, and that its share price has risen some 24% over the last three months amid vaccine optimism, with “stock trading at 0.9 times P/BV, closer to its long-term mean,” he notes in a Feb 1 report.

“Near-term price performance should remain rangebound with a further rebound likely only upon actual commencement of global travel, which in our view is only possible closer to year-end,” he adds.

Gearing for the trust is also modest at 37.5%, with management being open to “good acquisition opportunities”.

Unlike CGS’s Eing and Lock, Natarajan has lowered his core DPU estimates for FY2021-2022 by 5-14%, but has slightly raised his DPU estimates for FY2024.

He has also lowered his cost of equity (COE) estimates by 10 basis points to factor in cheaper funding costs.

Units in CDLHT closed 1 cent lower or 0.8% down at $1.22 on Feb 1.

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