CDL H-Trust – CIMB

Speed bump

CDL-HT’s 1H14 DPU was largely in line, at 46% of our full-year forecast. Although 2Q was a weak quarter, management indicated that 2H should be more positive. Coupled with fewer hotels coming online in FY14 and more events in 2H, we retain our positive view of this sub-sector and our Add rating for CDL-HT. But we are lowering our FY14-16 DPU forecasts by 1.9-4.9% in view of a slow corporate spending recovery and Chinese arrivals, leading to a slightly lower DDM-based (discount rate: 8.3%) target price of S$1.88.

Weak quarter

CDL-Hospitality Trusts’ (CDL-HT) 2Q14 results were largely in line, with 2Q DPU accounting for 22% of our full-year forecast and 1H achieving 46% of our FY14 forecast. Revenue for the quarter was up, largely due to additional contribution from Jumeriah Dhevanafushi, Maldives, which was acquired in Dec 13. However, this was offset by lower rent contribution from the Singapore portfolio where RevPAR dipped by 6.2% during the quarter. The weak DPU was exacerbated by the renovation at Claymore Link, acquisition cost of Jumeriah Dhevanafushi and exchange loss from Australia.

Brighter outlook

Although 2Q was a weak quarter, management is more positive on the outlook for 3Q on the back of quality events complemented by the recent opening of the Singapore Sports Hub which will be hosting another eight international sporting events in 2H14. Management further highlighted that in July, occupancy in Singapore started to improve on the month before and August is expected to strengthen further with notably more corporate activities. In addition, FY14 supply of new hotels has slowed considerably to 1,577 rooms (vs previously forecast of 2,572), which we believe will boost the performance of the hotel scene in 2H.

Maintain Add

Seasonally, 2Q is usually a weaker quarter for CDL-HT. Although this quarter was made worse by a slowdown in corporate spending and Chinese arrivals, we believe that the outlook for tourism in Singapore remains bright, with the turnaround coming in 2H14. We lower our FY14-16 DPU forecasts by 1.9-4.9% but maintain our Add rating.