CDL – GS
CDL REITS, gs remains a BUY with target price $2.13
– What’s changed . CDLHT net income for 1Q07 rose 40% yoy to S$11.3 mn helped by a 25% jump in RevPAR for its 4 Singapore hotels. Distribution per unit (DPU) for the latest quarter of 1.75 cents exceeded management’s projections by 28%. On an annualized basis, DPU was 7.1 cents, slightly lower than our FY07 forecast of 7.72 cents. We attribute the difference to seasonality, and highlight that all operating metrics since listing in July ’06 suggest good health 1) Revenue grew 60% to S$18.0m (from S$11.3m in 3Q06); 2) RevPAR grew 9.3% to S$153 (from S$140 in 3Q06); and, 3) Net Property Income grew 62% to S$16.7m (from S$10.3m in 3Q06).
– Implications. We believe 1Q07 results were positive and remain comfortable with our FY07 earnings and DPU forecasts. We continue to favor the Singapore hotel sector and are confident of demand absorbing the expected 10% growth in hotel rooms between end-2008 and end-2006. We note that for Singapore hotels, 1Q is traditionally the weakest quarter because of holidays such as the Lunar New Year in February. RevPAR for its Singapore hotels in 3Q06 and 4Q06 were 15% and 20% higher than in 1Q06 respectively. Given a stronger 2H07 and sustained visitor growth, we expect CDLHT to deliver 2-yr EPS CAGR of 8.5% per annum over FY07-09F.
– Valuation. We maintain our DCF based 12-m TP of S$2.13 for CDLHT, implying a share price upside potential of 16.4% and total returns of 20.6%. We like the dynamics for hotels in Singapore and look to CDLHT’s acquisition of the 440 room Copthorne Orchid as a catalyst. This hotel is subject to a right of first refusal granted by CDLHT’s sponsor Millennium & Copthorne.