Hospitality – DBSV

Winds of change

• Travel patterns in aftermath of Japan’s disaster could change in Singapore’s favor in coming months

• 2011 begins well; we believe that STB’s target of 12-13m visitors is attainable

• Hoteliers to continue recording robust results; BUY CDL HT, ART, GENS, UOL Group

Travel patterns could change in Singapore’s favor in coming months. In the aftermath of the devastating earthquake and tsunami that hit Japan and fears of a radiation leak, we see 2 trends emerging. (1) We believe that affected Japanese/corporates could delay travel overseas and (2) potential inbound travelers into Japan could look for alternative holiday destinations in the coming months. While the anticipated weakness from Japan will affect Singapore’s visitor growth somewhat, we believe that Singapore could benefit from this change in travel pattern in the near term, which might more than offset any potential weakness from Japan.

We see similarities between Singapore and Japan inbound tourists profiles. We believe that visitors from China, Korea – two of Japan’s top inbound visitor source markets (averaging 3m visitors / annum) are “low hanging fruits” for Singapore to tap as they are already top generating markets locally – collectively contributing c13% of annual visitor arrivals. In addition, in common visitor source markets between Singapore & Japan (Pg 4 of report), we find that Singapore is placed positively as one of the top 5 outbound destinations in these markets, supporting our view of a possibility of Singapore benefiting from such a diversion in travel plans.

1.06m tourists in Jan’11; year end target of 12-13m visitors could be attainable. Robust tourist numbers in Jan’11 is a strong foot forward towards attaining STB’s goal of 12-13m visitors. In addition, we continue to see strong growth in its top markets like China (+33%yoy), Indonesia (+20%yoy), Malaysia (+16%yoy) and to break new ground from likes of HK (+51% yoy), Thailand (+35% yoy).

Hospitality related stocks to continue delivering strong earnings. With RevPAR continuing inching up 19% yoy, 7%mom in first 2 months of 2011 on the back of continued robust occupancies of 82%, we believe hoteliers continue to have pricing power and expect them to continue to look to optimize rates through dynamic pricing strategies, translating to strong operating results in the coming quarters. Our top picks remain: CDL HT (BUY, TP S$2.30), Ascott REIT (BUY, TP S$1.38), UOL (BUY, TP S$5.31), Genting Singapore (BUY TP S$2.70).