Hospitality – DBSV

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• Record 5.5m visitors in 1H10, +22% yoy, 9% higher than previous peak in 2008

• Stronger 2H expected, demand to continue to outstrip room supply

• Hotel RevPAR up 20% YTD to S$174/night, further growth to be fueled by rate hikes

• BUY SIA, CDL HT, ART, Tiger Airways, UOL Ltd as proxies into the sector’s multi-year growth

Record 950k (+27%yoy) visitors in June’10. For 1H10, Singapore saw a total of 5.5m visitors, + 22% yoy, 9% over the previous peak in 2008. YTD visitation numbers implies that STB target of 11.5m-12.5m visitors in 2010 is attainable, as we have yet to pass the peak tourism seasons in Jun-Aug and the year-end holidays of Nov-Dec; historically, these account for 46-48% of full year visitations. Visitors are also staying longer with average stay of 4.2 days as of Jun’10.

Re-making Singapore is successful. Leveraging on the pull of the 2 IRs, we have seen visitors from major Asian markets rebounding strongly, with further potential from China and Australia as these have yet to reach their previous peak levels. Singapore has also broken into new markets with strong growth (>20%yoy) from visitors from HK, Philippines, Thailand & Vietnam.

F1 and YOG to fuel demand for rooms in 2H10, outstripping supply. With the upcoming events like Youth Olympic Games and Formula One coupled with the continuous ramping up of the 2 IRs, we expect room demand to remain tight in the coming months. Assuming average length of stay (“ALS”) of 4.1 days for 2010, we forecast total demand of between 10.5 – 11.4m room nights, versus total available room nights of 12.9m. We estimate that every 0.1 increase in ALS will boost industry occupancy by 2%.

Average RevPAR up 20% YTD. Average RevPAR is up 20% YTD with June’s RevPAR of S$191 (+40%yoy). With average occupancy at a high of 88%, further growth in RevPAR will be rate driven, which is more earnings enhancing. We maintain our view that average RevPAR in 2010 will rise 25% yoy to S$181.

Stock picks to ride on Singapore’s hospitality sector. Our picks to leverage on Singapore’s tourism sector secular growth story remains SIA, (BUY, TP $18.20), CDL HT (Under review, pending results), Ascott REIT (BUY, TP $1.44), UOL (BUY, TP $5.04), Tiger Airways (BUY, TP $2.25).