CDL H-Trust – CIMB

More legs to run

• In line; maintain Outperform and DDM-based target price of S$2.04 (discount rate 8.6%). 2Q10 results were broadly in line with Street and our expectations as we anticipate a back-loaded 2H10. 2Q10 DPU of 2.57cts (after deducting income retained for working capital) forms 23% of our full-year estimate and 25% of consensus. 1H10 DPU of 4.89cts for distribution is also broadly in line (45%). With dividend yields compressed to 5.6%, we believe accretive acquisitions are impending with the likely target markets being Singapore, Japan, Vietnam and India. We also believe REVPAR could grow further and expect BTMICE to be the next propeller beyond 2010, providing stock catalysts.

• 45% REVPAR growth. 2Q10 DPU was up 35.7% yoy on sharp increases in both occupancy and average room rates in Singapore hotels. Occupancy at 88.5% (+13.1% pts yoy) and average room rates at S$220 (+23.6% yoy) lifted REVPAR to S$195 (+45.4% yoy). More significantly, the growth in 2Q10 room rates was 24% vs. +3% in 1Q10 as occupancy edged closer to 90%. Average room rates of S$220 were 14% shy of CDLHT’s last peak of S$255. Management shared that weekend occupancy, typically much weaker than weekday occupancy, had also swelled to the mid-80%, with weekday occupancy way over 90%.

• BTMICE to spur next leg of growth. While increased corporate and leisure travel has boosted REVPAR substantially, we believe there is room for further organic growth, which should come from the BTMICE segment from 2011. Typically, event and convention organisers delay forward bookings until they have sighted convention venues. We believe forward bookings will ramp up as both Marina Bay Sands and Resort Worlds gradually open up their remaining sections over 2010-11. With anecdotal occupancy of hotels in both resorts at market levels, there should be good spillover demand for CDLHT’s hotels.