Hotels – DBS

August’08 visitors number shows a continuing slide

Story: Based on STB statistics yesterday, Singapore continues to see weaker visitor numbers in August ’08; 842,000 visitor arrivals, which was a 7.7% decrease from a year ago. Average Room Rate (ARR) in August 2008 was S$232, + 4.9% YoY, Average Occupancy Rate (AOR) was c.81%, posting a 9.5% decline a year ago. As such, RevPAR growth narrowed to only +2.8% YoY at S$187 for the month.

Point: The performance is largely in line with our expectations. As per our Hospitality Sector report dated 4th Sept’08, titled ” Playtime is Over”, we have highlighted that 2H08 tourism sector performance to moderate compared to 1H08, and (i) Aug’08 should remain weak due to the distraction from the Chinese Olympics, (ii) high regional inflation and slowing GDP growth leading to cuts in discretionary spending and (iii) in the medium term, a slowing tourism sector arising from a global slowdown.

Moving forward, although Sept’08 sector performance is expected to be boosted by the Formula One Night race held over the coming weekend, weak underlying fundamentals could lead to further slowing tourism numbers in the medium term.

Relevance: Given the lack of catalyst for a re-rating and potential headwinds moving forward, we are maintaining our Neutral Call on the sector. In terms of stock picks, we remain selective as slowing tourist arrivals could imply weaker earnings for hoteliers moving forward.

We maintain BUY on ART, TP $0.94, which is trading at an attractive 30% discount to our revised RNAV of S$0.94. Earnings should remain resilient with leases locked in for an average of 8 months ahead.

For CDL HT, we view that exposure to slowing RevPAR could lead to weak earnings and thus cap performance in the near term. As such we maintain HOLD, TP $1.23.