CDL H-Trust – JPM

Keep the faith in Integrated Resorts

• Keeping the faith. CDREIT has more than quadrupled since the trough in Mar 09, and has outperformed the FSSTI index by 110.5% in the last 12 months. While volatility for hospitality stocks tends to increase before large events such as the opening of 2 integrated resorts (IRs), we maintain our Overweight rating on CDREIT on the back of J.P. Morgan’s bullish view towards the two IRs.

• Raising our estimates. We raise our earnings estimates for FY10EFY12E by 18% as we increase our room rate forecast and expect the trust to revert to 100% dividend payout ratio. Our revised estimates assumes RevPAR for Singapore hotels at S$191/day and S$210/day for FY10E and FY11E, which compares to the peak RevPAR of S$208/day achieved in 2008.

• Earnings risk still on the upside. Given that no. of rooms per casino table for the 2IRs in Singapore is much lower than that in Malaysia and Macau, we see greater opportunity for hoteliers such as CDREIT to further increase its RevPAR. We estimate that every 10% increase in CDREIT’s RevPAR would increase our DPU estimate by 12%. In addition, the trust could utilize its lowly geared balance sheet for yield accretive acquisitions.

• We reiterate our Overweight rating on CDREIT, and raise our Dec-10 DDM based price target to S$2.00/share (S$1.85/share previously). The increase in PT is a result of an increase in earnings estimates and a reduction in LT growth forecast to 2.3%. Key risks to our rating and price target include a failure for the 2 IRS to attract visitors to Singapore and a worse than expected operating performance.