CDL Hospitality Trusts

OCBC on 15 June 2012

The weak global macroeconomic conditions have begun to take a toll on the short-term performance of the local hotel industry. Apr figures released by the Singapore Tourism Board show that visitor arrivals grew 9% YoY, much less than the 14.6% YoY growth for 1Q12. Average RevPAR for April grew 10.3% YoY versus the 14.7% for 1Q12. Speaking to a hotel rooms wholesaler, we understand that May and June to-date have been relatively quiet. We estimate that occupancy growth for May was two-thirds of what was seen for January-April. The long-term growth prospects for the hospitality sector are still positive and we believe our 7.5% YoY RevPAR growth estimate for CDLHT is achievable. We maintain a BUY rating on CDLHT and our fair value of S$2.04.

Growing more moderately
The weak global macroeconomic conditions have begun to take a toll on the short-term performance of the local hotel industry. Apr figures released by the Singapore Tourism Board show that visitor arrivals grew 9% YoY, much less than the 14.6% YoY growth for 1Q12. Indonesia showed a significant slip in growth rate for Apr (+10.3% vs +16.0% for 1Q). Australia, HK and the UK showed YoY declines of 4.0%-14.4%. Average RevPAR for Apr grew 10.3% YoY versus the 14.7% for 1Q12.

Slower 2Q
We spoke to a hotel rooms wholesaler yesterday and got some impressions. While Apr performance for local hotels was alright, the start of May marked the beginning of a relatively quiet period for hotels, except during Herbalife Extravaganza event (24k people, 18-20 May). We estimate that occupancy growth for May was two-thirds of what was seen for Jan-Apr. 3-star hotels were different from the pack and had strong occupancies around 90%. Jun so far has been quite slow too. As an indication of the less upbeat conditions, hotels are more willing to engage wholesalers and use discounts. Even some 5-star hotels have been cutting rates by 50% at the last minute.

Question marks about 3Q
Jul and Aug are traditionally slow months for the hospitality sector. Hotel figures for Jul last year were very strong (highest occupancy month for all four hotel tiers) and could present a reasonable hurdle for this Jul to outdo. Jul figures currently do not look impressive but the short lead time means that the visibility is reduced. The integrated resorts were exceptions in 2Q and they continue to prove themselves as all-weather attractions, with their hotels clocking good occupancies through till Aug.

Maintain BUY
The long-term growth prospects for the hospitality sector are still positive and we believe our 7.5% YoY RevPAR growth estimate for CDLHT is achievable. We maintain our BUY rating on CDLHT and our RNAV-derived fair value estimate of S$2.04.