The local tourism scene differs from what it was during the last crisis. Backed by fairly resilient Asian consumption, we expect arrivals and REVPAR to hold up. Investors, however, appear to have priced in the worst with the REIT down 30% from its peak.
We judiciously shave REVPAR, factoring in flat rates, lower visitor growth and hotel occupancy for FY12. This lowers our DPU estimates and DDM-based target price (disc. rate: 8.6%). Maintain Outperform, nevertheless, on a favourable risk-reward trade-off.
Not expecting 2008/9
We deem the local tourism scene different from what it was during the last crisis, with more positives than before. The two integrated resorts are running in full steam and continue to offer different experiences for both leisure and business travellers. There are more attractions to come on top of the government?s continual investments to woo the tourism dollar. 2009 was hit by a double whammy of an economic slowdown and H1N1. Further, with a higher dependence on growing regional economies, we believe visitor arrivals and REVPAR can hold up even as growth in Western economies slows.
Dynamics still positive
We are expecting 3-5% growth in arrivals which should keep occupancy at 84-86%, given a moderate 6% increase expected in rooms next year. Even if arrivals are flat next year, occupancy should remain above 80%, allowing hoteliers to raise rates.
6% yields even if pegged at the worst
We project a moderate 5% decrease in REVPAR, assuming flat room rates and industry occupancy rates, though upside could come from stronger rates after the refurbishment of Orchard Hotel, CDLHT's largest asset. Recent guidance suggests that corporate rates could be pushed up given tight occupancy. The share price, however, appears to have priced in the worst with the REIT down 30% from its peak. Offering a decent 6% yield even if we were to peg its local assets at the levels of the last crisis, we see a fairly attractive entry point.
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