SINGAPORE (May 2): RHB Research and Maybank Kim Eng are maintaining “buy” on CDL Hospitality Trusts (CDL HT) with respective price targets of $1.77 and $1.80, while OCBC Investment Research reiterates its “hold” call as it places its $1.56 fair value under review, pending further details.
This comes after the trusts' managers on Tuesday reported a 3.7% y-o-y decline in 1Q DPU to 2.09 cents due to lower revenue, which was mainly attributed to reduced revenue contributions from the trusts' Singapore, New Zealand and UK Hotels.
In a Thursday report, RHB analyst Vijay Natarajan says he continues to highlight CDL HT as his top hospitality pick as he believes it remains the best proxy to the sector’s ongoing recovery, despite cutting FY19F-21F DPU projections by 2-3% to factor in a slightly weaker-than-expected market outlook.
Going forward, the analyst expects a pickup in Singapore visitor data from 2H19 despite RevPAR likely to stay flattish due to ongoing refurbishment works at Orchard Hotel.
He also notes some improvement in trading conditions for the group’s Maldives market, and sees the possibility of more European hotel acquisitions in the near term.
“With most hotels’ asset enhancement initiatives (AEI) nearing completion, a better performance is expected from 3Q19 with favourable demand-supply dynamics providing some tailwind. Key risk: lower demand pickup on weak global economic growth,” says Natarajan.
Like Natarajan, Maybank analyst Chua Su Tye has cut DPU estimates by 1-2% as the latest 1Q results missed expectations, but nonetheless considers CDL HT his top sector pick with a 19% total return to the target price estimate.
He similarly expects a recovery in the Singapore market, driven by easing supply of 1.3% per annum over 2018-22E versus a 5.5% growth p.a. over 2014-2017.
“We see upside to DPUs as the sector is recovering after a four-year down-cycle and from a low base. A 1% increase in RevPAR assumption from our base case adds 1.3% to our FY20 DPU estimates,” adds Chua.
Meanwhile, OCBC analyst Deborah Ong says the trusts' weak 1Q figures come as expected as she foresees CDL HT to suffer from a decline in contributions from Orchard Hotel and Dhevanafushi Maldives Luxury Resort due to ongoing asset enhancement initiatives (AEIs) at both asset, on top of soft RevPARs locally over the latest quarter.
“We maintain ‘hold’ but place our fair value of $1.56 under review pending further details,” says Ong.
As at 11.31am, units in CDL HT are up by 1 cent at $1.61, implying a FY19E DPU yield of 6.1% based on Maybank estimates.
