CGS-CIMB trimmed its target price for CDL Hospitality Trusts (CDLHT) to S$1.43 from S$1.55, to account for lower non-room revenue for its Singapore assets.

The new target also accounts for lower gross operating margins led by greater cost pressures and slightly higher debt costs expected, said the brokerage on Monday (Oct 30).

The revised target came as analysts Natalie Ong and Lock Mun Yee cut distribution per unit (DPU) forecasts for FY2023 by 3.9 per cent to S$0.063. The DPU forecast for FY2024 was cut by 7.9 per cent to S$0.071.

Ong and Lock noted that most markets in CDLHT’s portfolio would register higher electricity and manpower costs, weighing on gross operating margins.

But the weakening margins will be less significant in Singapore, as they estimated that its electricity contracts for the next financial year were locked at around 30 per cent below the pricing for FY2023.

They also cited CDLHT’s managers on potential mild capitalisation rate expansion in some markets, which should be offset by higher income. This would result in “stable or slightly higher” year-on-year growth of year-end valuations.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The brokerage, meanwhile, revised CDLHT’s gross revenue forecast for FY2023 down 9.2 per cent to S$252.3 million, and down 7.2 per cent to S$287.7 million for FY2024.

Net property income estimates were also trimmed, by 11.9 per cent to S$137.8 million for FY2023, and 8.8 per cent to S$163 million for the next financial year.

However, Ong and Lock reiterated a “buy” call on the hospitality sector’s recovery.

“CDLHT is well-positioned to capture upside from its recent asset enhancements at Grand Copthorne and the strong UK built-to-rent market,” they added.

Similarly, UOB Kay Hian (UOBKH) maintained its target price of S$1.41 with a “buy” call. The hospitality player benefited from an industry-wide increase in average length of stay, amid travel recovery.

UOBKH analyst Jonathan Koh noted on Tuesday that the target price is based on a 7.5 per cent equity cost and 2.8 per cent terminal growth rate. He maintained a DPU forecast for FY2023 at S$0.061 and for FY2024 at S$0.07.

Koh also highlighted management’s guidance for a slight increase in debt costs, as the aggregate leverage edged slightly higher.

“Management expects average cost of debt to be slightly higher in 2024, despite refinancing S$383 million or 33 per cent of its total borrowings next year.”

CDLHT’s Singapore portfolio includes Grand Copthorne Waterfront Hotel and W Singapore at Sentosa Cove.

Stapled securities of CDLHT : J85 0% were trading down 1 per cent or S$0.01 at S$0.96 as at 1.58 pm on Tuesday.