CDL H-Trust – CIMB

Tide is turning

CDL-Hospitality Trusts (CDL-HT) just released its 4Q13 earnings with revenue and DPU growing by 2.8% yoy and 0.7% yoy respectively. These results are inline with our FY13 estimate with a deviation of 2.0% . On the back of more events coupled with the recovery of both global economy and corporate spending, we maintain a more uptick outlook of the hospitality market in FY14. However, with an expected 2,926 rooms coming on stream this year, the growth in RevPAR is expected to be limited to 2-3%. Upgrade to Add with unchanged DDM-based (discount rate: 8.9%) TP of S$1.79.

Results

For FY13, CDL-HT registered a drop in both NPI and distributable income by 1.4% and 3.1% respectively. RevPAR for the quarter dropped to S$187 (from S$191 in 3Q13), mainly attributed to lower gross revenue from the Singaporehotels and forex losses as a result of the weaker Australian dollar. This was mitigated by additional rental contributions of S$10m from Angsana Velavaru, Maldives.

Outlook brightens

As the global economy continues to recover, we expect corporate spending to strengthen correspondingly in FY14. With c.50% of total revenue attributed from this avenue, we expect CDL-HT earnings to strengthen. In addition as bi-annual events such as the Aerospace show and Food & Hotel Asia take place this year, coupled with more MICE events, we expect the hospitality market to benefit as a whole. However, with 2,926 rooms coming online in FY14, the positivity is expected to be dampened by the additional competition as the market digests the additional supply.

Upgrade to Add as positivity outweighs

CDL-HT is trading at 7.0%/7.4% FY14/15 dividend yield. As the positivity in the hospitality outweighs the additional supply of hotel rooms in FY14, while CDL-HT continues to benefit from the strong RevPAR growth of its two Maldives hotels, we believe a turn around to the stock is imminent. Upgrade to an Add with unchanged DDM-based TP of S$1.79 as management continues to boost earnings via potential acquisitions in countries such as Japan, Australia and Asia.