Visitor arrivals to Singapore in 2011 hit a record of 13.2m, +13% YoY. The Singapore Tourism Board (STB) has indicated that the growth rate will probably lower this year, but we are comfortable with that. In fact, STB's target of 17m annual visitors by 2015 implies an increase of 6.6% p.a., which we think is achievable. Exciting attractions are coming online and the government just announced a S$905m boost to the Tourism Development Fund last Friday. Four of the five top places of origin for travelers into Singapore are projected to have real GDP growth of >5.0% for 2012. We project that for 2012-2015 hotel demand will grow at 6.4% p.a., outstripping room supply increase of  3.8% p.a.

Some of the growth to reach the 17m annual visitor arrivals target will come from additional cruise business following the 2Q12 opening of the Marina South International Cruise Terminal, which will double Singapore's current cruise handling capacity. The cruise business will not be a hotel driver per se, because cruise visitors do not typically stay in hotel rooms. However, the gaming business of the integrated resorts should be boosted as the IRs are part of the catchment area for the cruise passengers. Cruise operators like Genting HK should also benefit. SATS should also see increased business as it will operate the cruise terminal.

Our in-house database of hotels in Singapore splits hotels into highend (4-star and above) and budget (3-stars and below, including backpacker inns). Over 2012-2015, supply growth for budget hotels and high-end hotels will be at CAGRs of 5.6% and 3.0% respectively, that is, both comfortably exceeding overall demand growth.

Being optimistic about sustained growth over 2012-2015, we initiate an OVERWEIGHT view on the hospitality industry. We reiterate our BUY ratings on CDL Hospitality Trusts [FV: S$2.00] and Genting Singapore [FV: S$2.02].  (Read full report)