CDL H-Trust – AmyBank Kim Eng

FY14 a better year for hospitality

• Expect hotel room supply to register 5.7% CAGR over 2013-2015, in line with demand growth.
  
• Expect corporate bookings to be more favourable in 2014 as the USD strengthens against the SGD.
  
• Brace for a tactical recovery this year with the hospitality outlook turning more positive.
  

Tourism growth slows but supply can be absorbed

A total of 8,096 new rooms from known hotel projects will come on-stream between 2014 and 2016, according to commercial real estate services company CBRE. This constitutes ~15% of available stock (2013: 54,962 rooms). Nonetheless, we expect the balance between supply (measured in terms of available room nights) and demand (measured in terms of paid lettings) to stay on an even keel over 2013-2015, growing at 5.7% CAGR. RevPAR growth is projected to shrug off the 2% decline in 2013 to rise 3% this year before sliding by 1% in 2015 and 2% in 2016. We keep our forecast visitor arrivals intact at 16.4m (+6%) in 2014 and 17m (+3.7%) in 2015, the latter in line with Singapore Tourism Board’s target as well.

Better performance in store in FY14

Compared with last year, the biennial events to be held this year include crowd-pullers such as the Singapore Airshow last month, Food & Hotel Asia exhibition next month and the WTA Championships in October. With the USD strengthening against the SGD, we expect corporate bookings to also turn favourable. In addition, there will be a reprieve from new room supply this year – 2,037 vs 3,766 last year. CDL Hospitality Trusts currently trades at a 1% discount to its book value, which we believe is due to earlier concerns over hotel room glut and falling RevPAR. With the outlook for the hospitality industry turning more positive this year, we think investors can position themselves for a tactical recovery. Maintain BUY with our DDM-based TP unchanged at SGD1.75 (discount rate of 7.1%, terminal growth rate of 1%).