DBS on Monday (Feb 20) initiated coverage on Hotel Properties Limited (HPL), as analysts said the group’s prime hotel portfolio in tourist hotspots and countries with relaxed Covid-19 policies would make it a key beneficiary from a return of Chinese tourists.

Analysts Elizabelle Pang and Derek Tan noted that HPL’s revenue or revenue per available room (RevPAR) has returned to close to 90 per cent of pre-pandemic levels.

Pang and Tan said that, with the group’s portfolio being in popular tourist destinations with eased Covid-19 rules, the RevPAR for HPL’s hotel division in FY2023 and FY2024 is likely to come in at 109 per cent and 115 per cent above pre-pandemic levels, driven by pent-up travel demand.

HPL’s property segment is likely to get a lift in its medium-term earnings, once the upcoming mixed-use property development projects in London are completed, they added. These projects are estimated to contribute about S$45 million in associates and joint venture income from FY2023.

Other potential positive catalysts included unlocking the property group’s stake in Cuscaden Peak, possibly through a divestment of its stake of assets, which DBS believes can help drive an upside to HPL’s net asset value and subsequently, its share price.

The brokerage thus initiated coverage on HPL with a “buy” recommendation and a target price of S$4.35. The target price was based on a revised net asset value (RNAV) valuation of S$5.80 per share, with an assumed 25 per cent discount to the estimates.

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The RNAV took into account the group’s hotels, investment properties and stake in Cuscaden properties. It, however, excluded hotels held by the group’s associates and jointly controlled entities.

DBS also warned investors of key risks, which included a lower-than-expected RevPAR, as well as weaker-than-expected tenant sales from upcoming mixed-use development projects in London.