CDL Hospitality Trusts

Maybank Kim Eng Research, March 25

TOURISM growth slows but supply can be absorbed. A total of 8,096 new rooms from known hotel projects will come on-stream between 2014 and 2016, according to commercial real estate services company CBRE.

This constitutes about 15 per cent of available stock. Nonetheless, we expect the balance between supply and demand to stay on an even keel over 2013-2015, growing at 5.7 per cent compounded annual growth rate (CAGR).

Revenue per available room (RevPAR) growth is projected to shrug off the 2 per cent decline in 2013 to rise 3 per cent this year, before sliding by one per cent in 2015 and 2 per cent in 2016. We keep our forecast visitor arrivals intact at 16.4 million in 2014 and 17 million in 2015.

Compared with last year, the biennial events this year include crowd-pullers such as the Singapore Airshow last month, Food & Hotel Asia exhibition next month and the WTA Championships in October. With the US dollar strengthening against the Singapore dollar, we expect corporate bookings to also turn favourable. In addition, there will be a reprieve from new room supply this year - 2,037 versus 3,766 last year.

CDL Hospitality Trusts currently trades at a one per cent discount to its book value, which we believe is due to earlier concerns over hotel room glut and falling RevPAR. With the outlook for the hospitality industry turning more positive this year, we think investors can position themselves for a tactical recovery.

Maintain "buy" with our dividend discount model-based target price unchanged at $1.75 .

BUY