Tuesday, October 8, 2013

CDL Hospitality Trusts: Upgrade to BUY on valuation grounds (OCBC)

CDL Hospitality Trusts:
Fair value S$1.83
add: 12m dividend forecast S$0.10
versus: Current price S$1.63

Upgrade to BUY on valuation grounds
• Slight RevPAR growth for industry in Aug
• Reasonable entry point
• Upgrade to BUY

Based on STB figures, we estimate that Hotel RevPAR saw a mild growth of 2% YoY to S$232 in Aug. This compares favorably to the overall YoY decline for Jan to Aug of 1.9%. With generally positive sentiment from hoteliers about Sep, we could see stabilization in the sector.
CDLHT is 23% below its 52-week peak of S$2.12 on 17 Apr, dragged down by poor sector data points and general concern about oversupply. However, we believe that the negative news has been priced in and at the current price level is a reasonable entry point. Incorporating a risk-free rate of 2.4% (versus 2.7% previously) into our DDM model to reflect lower bond yields, we raise our FV on CDLHT to S$1.83 from S$1.56. On valuation grounds, we upgrade CDLHT from a Hold to a BUY. CDLHT is trading at an attractive FY13 dividend yield of 6.4% (based on 90% distributable income payout).

Great variance among tiers
Based on STB figures, we estimate that Hotel RevPAR saw a mild growth of 2% YoY to S$232 in Aug. This compares favorably to the overall YoY decline for Jan to Aug of 1.9%. While the growth in Aug is encouraging, we do note that for the month, there was quite some variance in the YoY movement in average room rates between the tiers: Luxury (+9.4% to S$452.10), Upscale (-12.0% to S$264.60), Mid-Tier (+0.4% to S$189.50) and Economy (-7.1% to S$103.90). Similarly, Luxury and Mid-tier were the better performers in terms of RevPAR YoY change: Luxury (+20.1% to S$415.50), Upscale (-11.4% to S$236.70), Mid-Tier (+1.0% to S$170.20) and Economy (-8.1% to S$88.80). CDLHT’s hotels in Singapore are most appropriately classified as being in the Mid-tier/Upscale categories, so it is likely to demonstrate a blend of the performance figures from those tiers. With positive sentiment from hoteliers about Sep, we could see stabilization in the sector.

Negative factors more than priced in
CDLHT is 23% below its 52-week peak of S$2.12 on 17 Apr, dragged down by poor sector data points and general concern about oversupply; we forecast that that hotel room supply will expand at 6.5% p.a. over 2013-2015 while hotel room demand will grow at 5.4% p.a. However, we believe that the negative news has been priced in and the current price level offers a reasonable entry point.

Raise FV to S$1.83
Incorporating a risk-free rate of 2.4% (versus 2.7% previously) into our DDM model to reflect lower bond yields, we raise our FV on CDLHT to S$1.83 from S$1.56. On valuation grounds, we upgrade CDLHT from a Hold to a BUY. CDLHT is trading at an attractive FY13 dividend yield of 6.4%, versus 6.9% for its peers. It should be kept in mind that CDLHT has been conservatively paying out 90% of its distributable income, with the remainder retained for working capital. This is in contrast to the 100% being paid out by its peers, i.e. ART, FEHT and OUEHT. Hence a like-for-like comparison would see CDLHT trading at a yield of 7.1% (assuming 100% payout).


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 02/10/13

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