Share price: SGD1.58
Target price: SGD1.75 (from SGD1.80)
FY14 will be a better year for hospitality
Valuation looks appealing. The share price of CDL Hospitality Trusts (CDHLT) has corrected by 19% since Fed Chairman Ben Bernanke’s congressional testimony on 22 May 2013. At the current price, it would seem earlier concerns about hotel oversupply and RevPAR declines have already been priced in. With the stock trading at a yield of 7.2%, we reiterate our BUY call and a revised TP of SGD1.75.
Lacklustre results to pass. CDLHT’s 9M13 results were negatively affected by the flood of new hotel rooms in the absence of MICE events and amid weaker corporate demand. This has led to stronger-than-expected industrywide price pressure on room rates. The hospitality sector also felt the impact of a stronger Singapore dollar, which resulted in fewer bookings from key tourist markets such as Indonesia and Malaysia. We see some reprieve in 2014 with the return of the bi-annual Singapore Airshow on 11-16 Feb and the Food and Hotel Asia Exhibition on 8-11 Apr. In addition, the MICE industry will receive a boost from the opening of the Singapore Sports Hub in Apr 2014 (complemented by the reopening of the Suntec Convention and Exhibition Centre in Jun 2013). This will add another dimension to the local sports, entertainment and lifestyle scene. Major sporting events lined up at the venue include the season-ending Women’s Tennis Association Championships from 2014 to 2018 and the 28th Southeast Asian (SEA) Games in 2015.
Chunky hotel room supply. We note that new hotel room supply has been especially chunky in 2013 (3,766 rooms) and would remain so in 2015 (3,112 rooms). But supply is expected to diminish in 2014 with just 2,312 rooms coming on-stream. Beyond 2015, new completions will likely fall to below 2,400 rooms pa and there is also not much more in the pipeline (which takes 3-4 years to construct, ie, earliest completion in 2017 assuming tender award in end-2013). Based on the 2H13 Government Land Sales (GLS) programme, only 955 hotel rooms will be made available across three sites – East Coast (calling tender), Havelock (awarded) and Race Course (reserve list).
Medium-term story intact. In our view, the industry would be able to absorb the remaining 11k new hotel rooms in 2013-2016, although occupancy and RevPAR may come under pressure again in 2015 because of the lumpiness nature. In short, we believe CDLHT’s medium-term story is intact. We expect hotel room supply (measured in terms of available room nights) to grow at 5.4% CAGR over 2012-2016, lagging demand growth of 5.7%. RevPAR growth is projected to slow down from 4% in 2012 to 0% in 2013 but to grow 2% in 2014. We also adjust our visitor arrivals forecasts to 15.5m in 2013 (15m previously) and 17m in 2015 (16.4m previously), in line with STB’s 2015 target.
Publish date: 06/12/13