Saturday, July 25, 2009

Ascott REIT by OCBC & CIMB

OCBC by Meenal Kumar
CIMB by Janice Ding

More benign expectations. Our FY09F and FY10F distributable amount estimates are up 9% and 17% over previous estimates, reflecting our expectation of stabilization at current levels. Our new SOTP value for ART is S$1.14 (prev: S$0.82). This excludes our previous cash call assumption, as its current valuation impact is minimal. Market conditions have eased dramatically and we feel the risk of further stress on ART's portfolios and balance sheet has abated. Consequently, we are lowering our "uncertainty discount" to SOTP from 25% to 15%. Our new fair value estimate is S$0.97
(prev: S$0.61). Upgrade to BUY.

Downgrade to Neutral from Outperform; no change in estimates and DDM-based target price of S$0.79 (discount rate 10.3%). We maintain our forecast of a 13% decline in full-year REVPAU, in keeping with guidance. Our capex assumptions for FY09-11 are also in line with guidance. ART has risen 22% since our upgrade on 10 Jul, to exceed our target price of S$0.79. As such, we downgrade it to Neutral.

Feel that there isn't a point in reading analyst reports because valuation can change drastically, implying there is no magic formula. I admire analysts with the guts to come up with these formulas & assumptions in the unpredicatable market.

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