Being both a dividend play and one of the most liquid hospitality counters with good exposure to Singapore, CDLHT saw its unit price climb 36% end-2011 to a one-year high in mid Oct. However, moderation in the industry’s pace of growth, first seen in 2Q12, increased further in 3Q12 and CDLHT’s unit price has fallen 9% from the recent high. Our outlook for the hospitality industry remains cautious for the early part of 2013 but more positive in the longer term. On another note, given the high prices at which hotel sites have been sold for recently, the size of new hotel rooms in the future may become smaller. This will favor existing hotel assets and incumbents such as CDLHT. We maintain our fair value of S$1.91 on CDLHT and HOLD rating.
Exciting 1H12, tempered 2H
Singapore’s hospitality industry posted excellent performance in 1Q12, clocking RevPAR growth of ~15% YoY in 1Q12, according to the STB. Being both a dividend play and one of the most liquid hospitality counters with good exposure to Singapore, CDLHT saw its unit price climb 36% end-2011 to a one-year high of S$2.10 as of 18 Oct 12. However, moderation in the industry’s pace of growth, first seen in 2Q12, increased further in 3Q12. 3Q12 RevPAR for CDLHT declined 0.9% (versus +7.5% YoY in 1H12), and its unit price has fallen 9% from the recent high. With information from multiple sources, we estimate that RevPAR for most Singapore hotels in 3Q12 was generally flat YoY. Our outlook for the hospitality industry remains cautious for the early part of 2013, especially since odd numbered years tend to see fewer MICE events.
Incumbents’ advantage
We estimate that for 2012-2014, overall hotel room stock will grow at 4.8% p.a. while hotel demand will grow faster at 6.4% p.a. We remain positive on the long term growth prospects of CDLHT. We note that hotel sites have been sold at high prices in the past several months. Earlier in Nov, a record price of S$1,167 psf ppr was set for hotel land in Singapore; Resorts World Sentosa’s subsidiary made the top offer for the GLS Jurong Town Hall Road site. In 2Q12, RB Capital’s winning bid for a 99-year leasehold, GLS hotel site at Rangoon Road/Farrer Park Station Road was at $1,079 psf ppr. Due to these high prices the size of future hotel rooms may shrink to ensure a reasonable profit margin. Such a phenomenon would favor existing hotel assets as these would be preferred by business travelers. Incumbents such as CDLHT will have an advantage.
Maintain HOLD
We keep our fair value of S$1.91 on CDLHT and HOLD rating. An acquisition or better-than-expected hospitality numbers in the near term could serve as price catalysts. We believe that a possible acquisition target over the next year is W Hotel Sentosa Cove.
Singapore’s hospitality industry posted excellent performance in 1Q12, clocking RevPAR growth of ~15% YoY in 1Q12, according to the STB. Being both a dividend play and one of the most liquid hospitality counters with good exposure to Singapore, CDLHT saw its unit price climb 36% end-2011 to a one-year high of S$2.10 as of 18 Oct 12. However, moderation in the industry’s pace of growth, first seen in 2Q12, increased further in 3Q12. 3Q12 RevPAR for CDLHT declined 0.9% (versus +7.5% YoY in 1H12), and its unit price has fallen 9% from the recent high. With information from multiple sources, we estimate that RevPAR for most Singapore hotels in 3Q12 was generally flat YoY. Our outlook for the hospitality industry remains cautious for the early part of 2013, especially since odd numbered years tend to see fewer MICE events.
Incumbents’ advantage
We estimate that for 2012-2014, overall hotel room stock will grow at 4.8% p.a. while hotel demand will grow faster at 6.4% p.a. We remain positive on the long term growth prospects of CDLHT. We note that hotel sites have been sold at high prices in the past several months. Earlier in Nov, a record price of S$1,167 psf ppr was set for hotel land in Singapore; Resorts World Sentosa’s subsidiary made the top offer for the GLS Jurong Town Hall Road site. In 2Q12, RB Capital’s winning bid for a 99-year leasehold, GLS hotel site at Rangoon Road/Farrer Park Station Road was at $1,079 psf ppr. Due to these high prices the size of future hotel rooms may shrink to ensure a reasonable profit margin. Such a phenomenon would favor existing hotel assets as these would be preferred by business travelers. Incumbents such as CDLHT will have an advantage.
Maintain HOLD
We keep our fair value of S$1.91 on CDLHT and HOLD rating. An acquisition or better-than-expected hospitality numbers in the near term could serve as price catalysts. We believe that a possible acquisition target over the next year is W Hotel Sentosa Cove.
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