CDL H-Trust – DBS

Like bees to honey

 • Share price weakness not justified for improved portfolio stability post Australian acquisition
• Singapore tourist arrivals projected to increase 20-30% to 11.5 – 12.5m points to robust growth in 2010
• Offers best leverage to burgeoning Singapore hospitality sector, BUY TP S$2.11 based on DDM
 

Australian acquisition improves earnings stability. CDL HT’s share price has declined 8% vs the S-REIT index (+2%) since the announcement of its Australian portfolio acquisition in Jan’10. We believe that the current share price does not reflect the added stability of the portfolio given its (i) low beta proxy into Australia with its high minimum base rent of A$13.7m p.a secured over 11.3 years, and (ii) higher downside protection – DPU of 4 Scts per share (vs 2.5 Scts previously) backed by the trust’s base rent component. In addition, we see limited downside to earnings as we estimate that a depreciation of 10% in the AUD-SGD exchange rate will result in a 1% decline in distribution.

Best leverage to growth in Singapore’s tourism sector. CDL HT’s exposure into Singapore hospitality sector has not been diluted. The group will continue to benefit from the expected robust growth in visitor arrivals in 2010 given STB’s projection of between 20-30% growth, translating to demand of 10.9 to 11.9m room nights which represents 83-89% of total available room supply.

Opening of Universal Studios on 18th March 2010 to open tourist floodgates. With confirmation of the opening date, we believe that we will start to see visits to Universal studios flow through to strong headline visitor growth numbers from March 2010 onwards.

Fundamentals sound, maintain BUY, TP S2.11. The current share price weakness is an attractive entry point for investors to gain leverage into the stock. CDL HT offers one of the strongest FY09-11F DPU CAGR of c12.0%. Our BUY call and TP of S$2.11 is maintained offering a total return of 35%.