CLHTrust – CIMB

IR catalyst from 2010

• Maintain Outperform. Management guides that 2Q09 results could be weaker than in 1Q09. However, an increased number of conventions and events in the second half of 2009 is expected to support full-year performance. We believe that CDL-HT remains well-positioned to benefit from the tourism boost that the two integrated resorts (IR) should bring about from 2010. Chinese and Indian tour agencies are already marketing Singapore as a single tour destination (as opposed to the traditional marketing of Singapore as a stop-over destination, or lumped together with its neighbouring countries). This should have a significant impact on the length of visitors’ stay in Singapore, and hence REVPAR levels for Singapore hotels.

• Upgrading our estimates. We increase our occupancy forecast for CDL-HT’s Singapore portfolio to 82% from 80%. We also raise average room rate expectations to 3-5% growth from 5-10% declines earlier, over 2010-11. Additionally, with its last refinancing in Apr 09, CDL-HT will have no more debt due till FY12. We reduce our cost of debt assumptions to 4% from 4.5% to factor in lower-than-expected spreads obtained. We also use a lower discount rate 10.6%, down from 10.8% as we apply a lower risk-free rate of 4.8% across our universe.

• DDM-derived target price raised to S$0.99 (from S$0.68). Following the changes in our estimates, our target price rises to S$0.99. We continue to like CDL-HT for its low asset leverage of under 20%, and mid-tier portfolio, which would enable it to stay resilient despite the weak tourism outlook.