CDL H-Trust – CIMB

Picking up the pace

1Q14’s results were largely in line (core net profit at 26% of our FY14 forecast), demonstrating a more positive hotel market than a year ago. The stronger performance was partly due to Feb 14’s Singapore Airshow and the betterthan- expected performance of the Maldives portfolio. We keep our Add rating with a higher DDM-based target price of S$1.97 (discount rate of 8.9%) as we raised our DPU estimates for FY14-FY16 by 2.3-3.5%; factoring in the stronger performance of both Maldives and Singapore portfolios.

Strong quarter

In 1Q14, CDL-HT’s top line and DPU grew by 15.3% and 2.4% yoy respectively. RevPAR for the quarter increased to S$192 from S$187 in 4Q13, due to the stronger performance of its Singapore hotels, though this growth was dampened by more intensive competition as the market continued to digest the increased supply of 3,357 rooms. The new portfolio in Maldives also boosted the top line by c.S$7.6m. This growth, together with a stronger performance of its New Zealand hotel, was nevertheless partly dampened by the weaker Australia portfolio performance, the weaker Australian currency, and the loss in income from the AEI at Claymore Link – scheduled to be completed in 4Q14.

Positive outlook expected to be dampened by new supply

With an expected stronger recovery in corporate spending in FY14, we expect CDL-HT (c.55% of earnings from corporate spending) to benefit from this trend. Furthermore, earnings are likely to be further boosted by a fully packed calendar and multiple MICE events this year. However, the potentially more intense competition as the market digests the new supply of hotel rooms is likely to limit any expected RevPAR upside to c.2-3% in FY14.

Maintain Add

With an expected stronger Singapore portfolio coupled with the stellar performance of its two hotels in the Maldives, we believe that CDL-HT’s earnings will continue to grow. We maintain our Add rating with a higher TP of S$1.97, with potential upside surprises if more yield accretive acquisitions are done during the year.