CDL H-Trust – DBSV

More than you can imagine

• Stunning 38% yoy spike in RevPAR for April 2010 paves the way for a robust 2Q10

• Acquisitions offer upside to earnings, potentially add 13 Scts to our target price.

• Maintain BUY, TP revised to S$2.20

A steady start to FY10. 1Q results were in line. Improved portfolio-wide performance, plus partial contribution from its newly acquired Australian portfolio lifted gross revenue by 18% y-o-y (1% q-o-q) to S$26.6m. 1Q RevPAR grew to S$174 (+16% yoy, 9% qoq). Income available for distribution came in at S$19.4m (DPU of 2.58 Scts), before retained income for working cap purposes.

April’s RevPAR spikes 38% yoy. 2Q10 is set to deliver even stronger earnings with RevPAR reported up 38% yoy in April’10, even as the industry faces new room supply from the 2 integrated resorts. We note that increase in room demand in Singapore continues to outpace supply. Come 2011, room supply remains tight with only 500 rooms (+1% of room supply) completing. Anticipating higher occupancies and room rates in 2011, we raised FY11 numbers by 2%.

Acquisitions could add up to 13 Scts to our target price. CDL HT trades at an implied yield of 5%, which allows it to acquire assets accretively. The manager remains on a lookout for acquisition opportunities, even in Singapore. Assuming a long-term gearing ratio of 40% (vs 30% currently), we estimate an accretion of S$113m or 13 Scts to our target price.

BUY, TP adjusted to S$2.20. We believe that we are at the beginning of a multi-year secular recovery in the local tourism sector. Execution on its acquisition growth engine could yield an additional 13 Scts to our target price.