CDL H-Trust – CIMB

The waiting continues

While the hospitality sector remains weak, we believe the negativity has largely been factored in given CDL-HT’s current valuation of 1xP/BV. We continue to wait for re-rating catalysts such as turnaround signs in the hospitality sector and accretive acquisitions.

3Q13 results were slightly weaker than our estimate with DPU for the quarter accounting for 23% of our FY13 forecast and 9M13 DPU at 71%. We lower our estimates to account for the slightly weaker-than-expected results and roll over our valuations to FY15. This nudges up our DDM-based target price (discount rate: 8.5%) to S$1.76. Maintain Neutral.

Earnings remain weak

During 9M13, CDL-HT registered a drop of 1.7% yoy in NPI and a fall of 3.9% yoy in distributable income. This can be mainly attributed to lower gross revenue from the Singapore hotels and forex losses as a result of the weakening Australian dollar. However, this was mitigated by additional rental contributions of S$1.9m from Angsana Velavaru, Maldives. Similarly, on a qoq basis, revenue and distributable income dropped 0.8% and 2.2%, respectively, as RevPAR remained weak at S$191 (-6.4% yoy).

Challenging local market

The weak Singapore hotel performance can be mainly attributed to an increase in competition due to additional new supply of hotel rooms in the market and weak corporate spending (accounts for c.50% of total revenue). As a result, occupancy at these hotels was replaced by an increase in the leisure business, which was secured at lower rates.

Maintain Neutral

With the anticipated high supply of hotels for CY13-15 (5.9% CAGR), we remain concerned about the possibility of near-term oversupply as visitor arrivals are forecast to grow at a slower rate (5.7% CAGR). However, given its strong balance sheet and management’s active search for acquisition targets, we maintain our Neutral call on CDL-HT, with a turnaround in the hospitality sector and accretive acquisitions as key re-rating catalysts.