ART – CIMB

Improving performance, but upside limited

• Downgrade to Neutral from Outperform; unchanged DDM-based target price of S$1.21. ART’s 3Q09 results met Street and our expectations. Although revenue per available unit (REVPAU) improved as we anticipated, and although we remain positive on the hospitality sector, ART has already outperformed since our upgrade early this month, pricing in the positives. Hence we downgrade our recommendation to Neutral from Outperform.

• Results in line. YTD DPU of 5.48cts forms 75% of our full-year forecast. 3Q09 DPU of 1.92cts (26% of full-year forecast) was down 26.4% yoy due mainly to weaker demand for serviced residences in Singapore and China as a result of the global economic slowdown. However, DPU improved 7.3% qoq as REVPAU strengthened across the board. Tighter control of property-related expenses also lifted gross profit by 6% qoq to S$22m.

• Portfolio REVPAU grew. REVPAU, which had been declining since 4Q08, finally grew 4.2% qoq in 3Q09 to reach S$124. The recovery was led by Japan (+24.4% qoq) on the back of a stronger yen, Singapore (+14.9% qoq) and China (+6.8% qoq). REVPAU in three out of its seven countries remained in negative region, including Australia (-6.2%), Vietnam (-1.6%) and the Philippines (-3.5%).

• No changes in assumptions. We continue to expect REVPAU growth to be led by Singapore (+30%), the Philippines (+15%) and Vietnam (+10%) in 2010. Our DPU estimates and DDM-derived target price of S$1.21 are unchanged (discount rate 9.1%).