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Looking At Hotels And Courts – A Cause To Buy?
Tradeable, Tradeable Ideas | 11 December 2013
By: Justin Harper
Articles (23) Profile

The traditional end-of-year rally the local market enjoys looks unlikely to materialise as Santa stays away for the time being. Instead, traders seem to have run out of steam as the 2013 creeps to a close. Sentiment could be boosted by the latest Chinese economic data showing better-than-expected retail sales and export growth.

But one feels it will take more upbeat news to wake local traders out of their current slumber.

Source: Various research houses

Life’s A Beach For CDL Hospitality Trust
CDL Hospitality Trust got tongues wagging after announcing the acquisition of Jumeirah Dhevanafushi, a 35-villa exclusive luxury resort in the Maldives, for $74.8 million.

This is the trust’s second acquisition in the Maldives and should see contribution from this region increase from 4.6 percent to about 7.8 percent of FY14F net property income. DBS Vickers says the acquisition offers strong growth potential and estimates FY15F yield will hit a high of 7.7 percent.

Although the property is still relatively new, it achieved a respectable revenue per available room of US$754 during the first nine months of 2013. The acquisition is expected to be fully funded via debt from the trust’s multi-currency acquisition facility. After the purchase, CDL’s gearing is expected to increase from 28.1 percent to 30.6 percent.

It’s not all a bed of roses as CDL management has indicated that 4Q13 and 1Q14 performance for its Singapore hotels looks to be lacklustre.

Earnings could be enhanced from the continuing growth of the tourism industry in the Maldives and two new additional villas being added in 2014. Although positive on this acquisition, CIMB is maintaining its hold rating on CDL with a slightly higher target price of $1.79. The average upside potential among analysts is 11 percent.

The Jury’s Out Over Courts
Courts reported 2Q14 earnings of $7.2 million, coming in 55 percent lower than the same period last year, but 1.6 percent higher on a quarter-on-quarter basis.

Domestically, Singapore’s 2Q14 sales were 10.8 percent higher year-on-year due to bulk sales of older models of digital products (which carry lower margins) to clear the way for new product launches.

Over the causeway however, Malaysia’s sales were heavily affected by credit tightening measures, which lead to a 16 percent decline in like-for-like credit sales. While this change in sales mix led to lower gross profit margins, PhillipCapital continues to be positive on the Singapore part of the business.

The launch of new products, increase in spending power, population growth and completion of new housing units are expected to continue to drive higher sales growth here.

Malaysia is still a cause for concern and is not helped by the fact that a new megastore across the border is experiencing a slow start, which could cause a drag on profitability. As a result, PhillipCapital has downgraded Courts to Neutral, removed it from its “Deep Value Play” list and set a lower target price of $0.71.

But it’s a very different story at DBS Vickers which has upgraded Courts to Buy based on attractive valuations, with a target price maintained at S$0.77. It believes credit tightening has already been factored into share price and this could end post FYE Mar’14.

Moving into the FY15F period, growth is expected to be driven by new stores and relaxation of credit tightening. The average upside potential among analysts is for a 75 percent rise in Courts’ share price.

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Justin Harper is an experienced financial journalist who previously worked on the business desks of the Daily Mail, The Telegraph and Financial Times Business in London.

Please click here for more information about this author.

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