CDL H-Trust – CIMB

Time for a breather

• Downgrade to Neutral from Outperform; switch to PLife REIT. We are still positive on an IR-led recovery in Singapore, as reflected in our relatively bullish above-consensus estimates. We maintain our earnings estimates and DDM-based target price of S$1.41 (discount rate 9.06%). However, at 1.04x P/BV and yields of 5.5%, we believe CDLH-HT has been fairly valued. We recommend a switch to Parkway Life REIT (Outperform, S$1.10, target price S$1.31). PLife REIT trades at 0.8x P/V with a forward yield of 6.8%.

• 2H09 recovery likely to be stronger. Tourism indicators including visitor arrivals, average hotel room rates and occupancy levels are showing clear signs of emerging from trough levels. Additionally, we expect the short-term supply of hotel rooms to remain tight as the opening of new rooms at Singapore’s two integrated resorts is expected to be staggered over 2010-11. The likely early opening of Resorts World Sentosa is likely to revive REVPAR in 2H09.

• Acquisitions not likely in short term. Even though rising prices have depressed dividend yields, near-term acquisition catalysts appear to be lacking due to a conservative and value-hunting management.

• Up to 30% REVPAR recovery priced in for FY10. At our target price of S$1.41, we have assumed a REVPAR recovery of 30% for CDLHT’s Singapore hotels. At this level, CDL-HT will be trading at its book level of S$1.42/share.