Hotel Prop: There are better places to stay

Still Hurting. The global economic downturn and the H1N1 scare continued to draw blood from hospitality play HPL, as it reported a 72% yoy drop in 2Q09 PATMI to S$4.4m, as revenue slid 27% to S$103m. Lower contribution from property development did not help things, as start-up losses from its associates (like interest expense at Farrer Court) further hurt its bottomline.

Highly Geared. Despite its exposure to the cashflow-generative hospitality sector, operating cashflow stayed weak at S$15m, which did little to change its net debt position of S$1.3bn. Gearing remains high at 1.0x.

Not Best Play on IR Story. Its hotel portfolio comprises properties in Singapore as well as overseas. Even as we input a 25% increase in RevPAR for 2010 and roll over to FY10 valuations, Singapore hotels only contribute c.25% of FY10 earnings and 33% of RNAV.

Maintain HOLD, TP S$2.05. Our RNAV is raised to S$2.56 (from S$2.13) and we narrow our RNAV discount to 20% in anticipation of a turnaround in the global hospitality industry. With a TP of S$2.05, stock looks expensive at current levels and we prefer CDL HT (TP S$1.36), Genting S’pore (TP S$0.98) and UOL (TP S$3.86) as plays on the IR story.

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