CDL H-Trust – DBS

Extending its winning streak

• Recovery in sight
• We believe our 2H09 DPU estimate of 4.05 Scts (17% above consensus) is achievable
• Prospects for a further re-rating driven by earnings
• Maintain BUY, TP S$1.57 based on DDM

Signs of recovery sighted. July’09 tourist arrival statistics were very encouraging. We believe that newsflow for Singapore tourism industry should start turning positive from Aug-Sept’09 on the back of a lower base effect. In addition, sequential improvements in hotels occupancy levels is reassuring as further room rate cuts should be unlikely on the back of better room utilization rates.

Earnings likely to surprise consensus – again. Consensus is too conservative on CDL HT’s FY09 performance, in our opinion. With a 1H09 DPU of 3.86 Scts paid out, market is factoring in a lower 2H09 DPU of 3.44 Scts vs our estimate of 4.05 Scts, which does not jive with an improving outlook for tourist arrivals. We see possibility of another round of upward DPU adjustment come 3Q09. In addition, consensus has not priced in the positive ripple effect from the tourist influx on RevPAR in 2010.

Implied value per room of S$550k – not lofty. CDL HT’s implied valuation is on par with the recent transacted price of Swissotel Merchant Court. We believe CDL HT should trade at a premium given (i) strong support from Hong Leong and (ii) established business relationships, (iii) larger number of room inventory gives the trust economies of scale.

Maintain BUY, TP S$1.57. We see prospects for a further rerating driven by earnings in 2H09. Our TP is raised to $1.57 from higher RevPAR assumptions (+5 pct) and lower equity risk premium assumptions. We urge investors to take a long-term perspective on CDL HT, which will be a beneficiary of Singapore’s push for the success of the integrated resorts come 2010. CDL HT offers a FY09-10F yield of 5.7% – 7.1%.