CDL H-Trust – DMG

At inflection point; on course to a ‘V’ recovery

3Q09 results in-line with expectations. CDLHT reported 3Q09 DPU of 2.04¢ (+7.9% QoQ). Annualised 9M09 DPU came in at 5.9¢, in-line with our FY09 forecast. Net property income rose 11.3% QoQ to S$21.4m on the back of higher RevPARs achieved for all of its hotel properties. RevPAR rose 14.9% QoQ due to a 10.6ppt surge in occupancy in 3Q09. Excluding the S$1.7m income retained for working capital, DPU would have been 2.23¢. Maintain BUY, DDM-derived TP of S$2.15.

At inflection point; trading at mid-cycle valuations. 3Q09’s strong QoQ DPU growth marks the beginning of a ‘V’ recovery, powered by the resurgence in tourism offerings. We are sanguine that CDLHT remains the best proxy to a multi-year tourism boom that will take place next year. We expect systemic occupancies to rise to 84% next year, with ARRs rising to S$250. As such, we estimate CDLHT’s FY10 DPU to spike 35% to 10.8¢, inching above the FY08 levels of 10.6¢.

Gained market share through lower rates. The prospects for Singapore tourism has been augmented with improving visitor arrival statistics. Singapore registered a 7.1% growth in visitor arrivals in Sept 09, its first growth since May 08. Better still, CDLHT’s registered a strong occupancy of 86%, significantly higher than the industry’s average of 79%. CDLHT’s strategy of keeping its ARRs lower (S$179 vs. industry’s S$187) resulted in higher RevPARs (S$154 vs. industry’s S$148). We believe CDLHT’s strategy of gaining market through lower rates will likely beef up its RevPARs in the short-term.

Euphoric aura could see yields compress to 5%. We believe the stabilising global economy and the twin openings of the IRs will remain as euphoric events in 2010, providing sustained performance for CDLHT’s stock price. Despite surging from its S$0.43 March lows, we do not think stock price is fully reflective of the sated impact of the IRs. In the heydays of 2007-08, CDLHT traded at ~5% yield, below the current 6.9% level. We suspect CDLHT could trade towards the 5% level within the next 12 months, implying a recursive fair value of S$2.15. CDLHT is top pick among S-REIT counters.