Business model intact: to manage 30,000 units by 2010
We believe Ascott is on track to manage around 30,000 units by 2010 against
19,000 currently, based on its targets for key markets: China, Europe, Vietnam,
Singapore, India, and the Middle East. Other than building new properties, one
possible way for Ascott to expand quickly could be to acquire smaller operators
with lower PE.
European REIT and development funds
Ascott launched a S$500m China incubator fund in May 2007. We expect Ascott
to inject its S$800m European portfolio into a REIT in 2008, and potentially set up
more development funds for its expansion in Asia. We raise our EPS estimates
from S$0.054 to S$0.094 for 2007, from S$0.064 to S$0.070 for 2008, and from
S$0.077 to S$0.084 for 2009 partly to account for the management fees expected
from these funds.
Divestment gains of around S$116m in 2007, special dividend expected
Ascott continues to realise divestment gains as part of recurring income. In 2007,
we expect Ascott to book profits from the sale of Asia Hotel, Ascott Chancellor
Court, and a golf course in China. We expect Ascott to pay out around six cents per
share in dividends in 2007.
Valuation
We reiterate our Buy 1 rating and raise our price target to S$2.30 from S$2.05,
based on our DCF and blended EV/EBITDA valuations. Our price target implies
2008E PE of 32x, which we believe is reasonable, given our estimate of a 20%
EBITDA CAGR for 2007-10.
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