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Broker's take: OCBC upgrades CDLHT to 'buy' on rapid vaccine progress

OCBC Investment Research has upgraded CDL Hospitality Trusts (CDLHT) to "buy" from "hold". The research team also increased its fair value estimate to S$1.39 from S$0.98.

This came as the stapled group's stock price performance has been boosted by rapid vaccine progress, OCBC said in a research note on Monday.

Stapled securities of CDLHT rose $0.01 or 0.8 per cent to trade at S$1.21 as at 4.06pm on Monday. The counter has gained 1.7 per cent since it closed at S$1.19 on Nov 19.

The US Health and Human Services Secretary Alex Azar said on Nov 18 that Covid-19 vaccines from Pfizer and Moderna could be ready for US authorisation and distribution within weeks.

Said the OCBC research team: "This could set the stage for vaccine inoculation to begin as early as December 2020 and could further grow the confidence and drive the recovery of CDLHT's share price, in our view."

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OCBC has revised its distribution per stapled security forecasts up by 3-5 per cent for FY2020-2024. It also lowered its cost of equity assumption to 7.5 per cent and increased its terminal growth rate to 1.5 per cent from 1.25 per cent on improved sentiment and outlook.

As at Nov 19's close, CDLHT is trading at a price-to-book ratio of 0.82 time, which is almost one standard deviation below its historical mean of 0.95 time, OCBC said.

"We find valuations undemanding, especially given the positive vaccine development," OCBC said.

While the research team sees headwinds from Europe with the resurgence of Covid-19 cases, the reopening of borders and easing travel restrictions in Singapore amid a stabilised Covid-19 situation could provide some buffer.

The Europe market makes up 18 per cent of CDLHT's fiscal 2019 net property income, while Singapore contributes 62.3 per cent.

Positive vaccine development could drive the recovery of international travel which would benefit Singapore given its lack of domestic market, OCBC said.

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