SG: MARKET PULSE: Cache, Hospitality Sector, Rowsley (19 Aug 2013)

Stock Name: CACHE
Company Name: CACHE LOGISTICS TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.30

Stock Name: GP Hotels
Company Name: GLOBAL PREMIUM HOTELS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.33

MARKET PULSE: Cache, Hospitality Sector, Rowsley

19 Aug 2013

KEY IDEA Cache Logistics Trust: Not resting on laurels Summary: After staying quiet for over four months following the completion of the Precise Two acquisition, we believe Cache Logistics Trust (CACHE) may now be close to striking another acquisition deal in the near term. On last Friday evening, CACHE announced the incorporation of four wholly-owned subsidiaries, including a 100% stake in Cache Polar Logistics Warehouse (Shanghai) Co., Ltd. While no further details were given regarding the purpose of these entities except they are either investment holding or warehousing and logistics service companies, we are of the view that CACHE may be looking to acquire a warehouse facility in Shanghai, China. We note that CACHE's financial position is one of the strongest among the S-REITs space. This gives CACHE the financial resources and flexibility to take on attractive acquisitions as they arise, in our opinion. We are keeping our forecasts unchanged for now, but as we transition our RNAV valuation method to the dividend discount model, our fair value is trimmed to S$1.30 from S$1.40. We maintain our BUY rating on CACHE. (Kevin Tan) MORE REPORTS Hospitality Sector: Raise hotel room supply growth forecast Summary: We understand from sources that Jul and Aug may have been showing reasonably RevPAR growth on a YoY basis for the industry as whole, in contrast to YoY contractions for 1H12. Industry sources indicate that on a same-store basis, 2-star hotels and 3-star hotels are performing the best, followed by 5-star hotels. 4-star/4.5-star hotels are doing poorly, being squeezed by competition from 3-star and 5-star hotels. This relative performance was already observed in 1H13. We remain NEUTRAL on the hospitality sector. We forecast that hotel room supply will grow at 6.5% p.a. for 2013 to 2015 (higher than the 5.8% p.a. we previously estimated), outstripping estimated hotel room demand growth of 5.4% p.a. Our top pick is Global Premium Hotels [BUY, FV: S$0.33], which is chiefly represented by the more favorable Economy category, which will see fairly low supply growth of 3.6% p.a. (Sarah Ong) Rowsley Ltd: A scenario-based analysis of value Summary:Last Thursday, Rowsley received the approval in-principle from SGX for its proposed acquisitions of RSP Group and the Vantage Bay site in Iskandar, and a 2-for-1 bonus issue of warrants. Management reports that it would dispatch a circular and convene an EGM to seek shareholder approval in due course. We note that, on 2 Aug 2013, management announced that "barring unforeseen circumstances, the deal should complete in the second half of 2013 after regulatory and shareholders' approval." In our research piece, we carry out an analysis of Rowsley's value under a successful RTO scenario, and also under a failed RTO scenario. If Rowsley's proposed deal fails, we value each existing Rowsley share at approximately S$0.034 - its book value per share as at end Jun 2013. However, if the deal succeeds, we calculate from our analysis a value of S$0.67 to S$0.85 for each existing Rowsley share (before the 2-for-1 warrant issue ex-date). (Eli Lee)

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