Upgrade to Outperform from Neutral; higher target price S$1.21 (from $0.88). We anticipate a gradual global economic recovery led by Asia to catalyse ART’s revenue per available unit (REVPAU) growth, particularly in Singapore and the Philippines. We now expect REVPAU growth of 5-30% for FY10-11 (3-10% previously) for these two markets. Our DPU estimates increase by 11-13% accordingly. We also roll over our target price to CY10, giving us a revised target price of S$1.21 (from S$0.88), still based on DDM valuation (discount 9.1%). We are positive that the short-stay business in ART’s key markets will be able to capitalise on an economic upturn. Upgrade to Outperform from Neutral.
Assets in core growth countries. The Asian Development Bank recently lifted its forecast for growth in Asia, on the back of Asia’s relative resilience in this global economic slowdown. Five of ART’s seven markets fall into the core growth countries in Asia, auguring well for demand for its serviced apartments.
Room rates stable; occupancy up across the region. While room rates were flat, occupancy improved in 3Q09. Singapore and the Philippines are most likely to surprise on the upside, given government-initiated catalysts. Despite increasing acquisition possibilities, REVPAU growth should take centre stage in this economic upturn, in our view.
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