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Courting the Chinese tourist

Chinese tourists account for over 12% of arrivals into ASEAN, the largest single-source market for ASEAN, and should continue growing firmly

Thailand, Singapore and Malaysia were among the top 10 countries visited by Chinese travellers in 2015 (excluding HK and Macau)

ASEAN, with its affordable and attractive cultural diversity and leisure offerings, is also doing more, especially on easing visa processing, to woo the Chinese

Our top picks are Airports of Thailand, Erawan Group, Asia Aviation, Bangkok Airways, Singapore Airlines, and CDL Hospitality Trusts.

Part 2 of 3 of “The Great Tourism Drive” Chinese tourists to the fore. According to The World Tourism Organisation, China’s total outbound travellers rose 10% y-o-y to 128m in numbers, while spending rose 25% y-o-y to US$292bn. For the first three months of 2016, Chinese arrivals have risen by 29% in Thailand, 47% in Singapore and 35% in Malaysia, indicating firm growth momentum. Multi-pronged efforts to lure Chinese tourists. Thailand continues to be a role model for efforts in attracting tourists to its shores. This includes a) building quality attractions and promoting culture, b) relaxing visa requirements, and c) improving connectivity and infrastructure, i.e. its open-sky approach and improved airport capacity. Singapore, meanwhile, has a strong track record of coming up with new attractions, e.g. Integrated Resorts, Jewel Changi Airport, Mandai nature hub, etc. Most other ASEAN countries have adopted a number of such measures to attract more tourists. Growing Chinese tourist numbers into ASEAN is a long-term secular trend. We believe that Chinese tourists into ASEAN will continue to grow firmly in the medium to long term, driven by: 1) The growing middle class in China and the propensity to travel for leisure, 2) ASEAN’s attractiveness as a leisure destination and continued efforts by ASEAN governments to attract the Chinese tourist to their shores, and 3) The proliferation of Low Cost Carriers (LCCs) and spending on infrastructure to help drive and support such growth.

STI : 2,862.38 KLCI : 1,657.85 JCI : 4,916.06 SET : 1,445.54

Analysts Paul YONG CFA +65 6398 7951 [email protected] Mervin SONG CFA +65 6682 3715 [email protected] Namida ARTISPONG +66 2657 7833 [email protected] Marvin KHOR +60 32604 3911 [email protected] Singapore Research Team ASEAN TRAVEL & HOSPITALITY Top Picks

Price Mkt Target Upside /

8 Jun 16 Cap Price (Downside)

Company LCY US$m LCY Rating %

Airports of Thailand 389.00 15,820 470.00 BUY 21

The Erawan Group 4.60 327 5.70 BUY 24

Asia Aviation 6.05 835 7.15 BUY 18

Bangkok Airways PCL 24.50 1,465 28.30 BUY 16

Singapore Airlines 10.59 9,149 12.50 BUY 18

CDL Hospitality Trusts 1.42 1,039 1.50 BUY 6

Source: DBS Bank, DBS Vickers, AllianceDBS Other ASEAN TRAVEL & HOSPITALITY STOCKS AT A GLANCE

Price Mkt Target Upside /

8 Jun 16 Cap Price (Downside)

Company LCY US$m LCY Rating %

Central Plaza Hotel 40.50 1,556 45.00 BUY 11

Minor International 40.50 5,076 42.00 BUY 4

Thai Airways 16.90 1,050 16.80 HOLD (1)

Samui Airport Fund 24.30 657 26.00 BUY 7

Malaysia Airports 6.56 2,705 6.40 HOLD (2)

Air Asia Bhd 2.66 1,840 2.70 BUY 2

Air Asia X 0.39 402 0.39 HOLD 0

Garuda Indonesia 480.00 940 520.00 BUY 8

Ascendas Hospitality 0.67 552 0.80 BUY 20

OUE Hospitality 0.67 886 0.75 BUY 11

Ascott Residence 1.14 1,394 1.28 BUY 12

Far East Hospitality 0.62 825 0.63 HOLD 2

Source: DBS Bank, DBS Vickers, AllianceDBS

DBS Group Research . Equity 9 Jun 2016

Regional Industry Focus

ASEAN Travel & Hospitality

Industry Focus

ASEAN Travel & Leisure

ASEAN’s tourism boom Rise of ASEAN travel. According to the World Travel and Tourism Council (WTTC), contributions from ASEAN’s travel and tourism sector surged by close to 40% from US$207bn in 2010 to US$279bn in 2014, or 8.7% CAGR, on the back of strong growth in tourist arrivals into the region. Data compiled by the ASEAN Tourism Statistics Database shows that international tourist arrivals for the region grew at 9.3% CAGR over the period, from 73.8m visitors in 2010 to 105.1m in 2014 (Note: the number used by UNWTO is a similar 8.2% CAGR). Firm growth in tourist arrivals

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2010 2011 2012 2013 2014Brunei Darussalam* Cambodia IndonesiaLao PDR Malaysia MyanmarPhilippines Singapore ThailandVietnam

Source: ASEAN Tourism Statistics Database, DBS Bank More than half of the growth in arrivals were headed for Thailand, Singapore and Malaysia. Excluding Brunei, whose data prior to 2013 only included arrivals via air transport, we estimate that close to one-third (or 32%) of ASEAN’s arrival growth between 2010 and 2014 were attributable to entries into Thailand, while 12.5% and 10.3% were attributable to Singapore and Malaysia respectively. Breakdown of arrival growth by point of entry

Cambodia, 7%Indonesia, 9%Lao PDR, 6%

Malaysia, 10%

Myanmar, 8%

Philippines, 5%

Singapore, 12% Thailand, 32%

Vietnam, 10%

Source: ASEAN Tourism Statistics Database, DBS Bank Intra-ASEAN demand a main driving force. Due to the geographical proximity of member countries, the lion’s share of arrivals into Southeast Asia have historically originated from

within ASEAN itself. As such, the region was a key beneficiary of the strong growth in intra-regional travel over the last decade, as the emergence of LCCs drove connectivity within the bloc, especially to secondary gateways and sub-regional points. Key source markets for tourism (2014)

Intra-ASEAN, 47.5%

Japan, 4.5% China, 7.3%

Republic of Korea, 4.5%

Australia, 4.7%

European Union 28,

9.5%

USA, 3.6%

India, 3.4%

Rest of the world, 15.0%

Source: ASEAN, DBS Bank Intra-ASEAN demand aside, China is the largest single source. Apart from the arrival growth from Russia, which was mostly skewed by its much lower base, Chinese arrivals into ASEAN grew rapidly at 24.6% CAGR, as it more than doubled from 5.4m in 2010 to 13.1m in 2014 to become ASEAN’s largest single-source market outside of intra-ASEAN arrivals. Fastest-growing source markets* (2010-2014)

No. of tourist arrivals (m)

2010 2014 CAGR (%)

Russia 0.9 2.4 28.7%

China 5.4 13.1 24.6%

Canada 0.5 0.8 12.6%

South Korea 3.3 5.0 11.2%

Intra-ASEAN 35.0 49.2 8.9%

*based on ASEAN’s 10 largest source markets as at end-2014

Source: ASEAN Tourism Statistics Database, DBS Bank At end-2014, Chinese arrivals represented 12.4% of ASEAN’s total arrivals, rising significantly from just 7.3% in 2010. Rising share of Chinese tourists in ASEAN

2010 2011 2012 2013 2014

Intra-ASEAN 47.5% 46.5% 44.7% 45.2% 46.8%

China 7.3% 9.0% 10.4% 12.4% 12.4%

European Union 28

9.5% 9.1% 9.1% 8.5% 8.8%

South Korea 4.5% 4.8% 4.5% 4.8% 4.8%

Japan 4.5% 4.5% 4.8% 4.6% 4.4%

Source: ASEAN Tourism Statistics Database, DBS Bank

Industry Focus


Chinese tourists to the fore Explosive growth in Chinese tourism. Chinese outbound tourism has been growing at a breakneck pace of 16.6% CAGR from 2009 to 2015 to 120m and more importantly expenditure by outbound tourism grew by a CAGR of 31.8% in the same period to US$229bn in 2015. Chinese outbound tourism

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Source: World Bank, GFK, China Outbound Tourism Research Institute (COTRI), DBS Bank The strong growth in Chinese outbound tourism, measured by both number of people and expenditure, is largely driven by China’s 1) growing middle class, 2) firm economic growth, and 3) greater propensity to travel. China’s fast-growing middle class. Since China joined the World Trade Organisation in December 2001 and opened up its economy, the country has enjoyed tremendous economic growth. This has naturally led to high income growth for its population, and lifting millions of people into the middle class. In terms of GNI (Gross National Income) per capita, as measured by The World Bank, China has seen its income per capita rise from just US$330 in 1990 to US$7,400 by 2014.

This was close to the World Bank’s upper-middle-income benchmark of US$7,926 in 2014. According to the Discover China’s Emerging Middle Class survey released by ZenithOptimedia, China’s emerging urban middle class totalled 125m in 2012, and the number is expected to reach 356m by 2020. GNI per capita, Atlas method (current US$) - China

Source: World Bank, DBS Bank Rising propensity to travel for leisure in China. It was estimated in the MasterCard Insights 1Q2014 report that outbound leisure trips (excluding HK and Macau) as a percentage of total households in China was 9.1% in 2014, and is projected to rise to 18.8% in 2020. This is in comparison to 35% for Japan, 99.6% for South Korea and 566% for Singapore in 2014. According to the same report, the inflection point for the propensity for international leisure travel for emerging markets is around the US$10,000 (household income) mark after which it continues rising rapidly until the US$30,000 level.

Outbound travel growth vs. Real GDP Growth

Country/Region Trip Type 2011 2012 2013 2014 2020

China Leisure 9.9% 11.7% 14.0% 16.3% 29.7%

China (excl. HK & Macau) Leisure 5.1% 6.3% 7.9% 9.1% 18.8%

India Leisure 2.2% 2.5% 2.7% 3.0% 5.8%

Japan All purpose 34.4% 37.4% 34.7% 35.0% 37.7%

South Korea All Purpose 68.9% 73.8% 80.2% 82.3% 99.6%

Singapore All purpose 548.4% 564.4% 562.3% 566.1% 696.4%

Hong Kong All purpose 283.7% 305.9% 332.5% 334.9% 427.8%

Source: MasterCard Insights 1Q2014

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Industry Focus


The Chinese are also spending more per tourist. Since 2010, expenditure per tourist has grown rapidly, in tandem with rising disposable income for the Chinese. Expenditure per Chinese tourist (US$)

400

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: World Bank, GFK, China Outbound Tourism Research Institute (COTRI), DBS Bank ASEAN countries among top 10 destinations visited by Chinese travellers. According to Bloomberg, top destinations for Chinese outbound tourists in 2015 include several ASEAN member countries such as Thailand, Singapore and Malaysia, which had shares of 5.9%, 1.6% and 1.1% respectively. Top destinations for Chinese outbound tourists (2014-

2015)

Destination

Tourists (in millions) YoY 2015

%share 2014

%share 2015 2014

Hong Kong 45.8 47.2 -3.0% 34.4% 40.6%

Macau 20.4 21.3 -4.0% 15.3% 18.3%

Thailand 7.9 4.6 70.1% 5.9% 4.0% South Korea 6.0 6.1 -2.3% 4.5% 5.3%

Japan 5.0 2.4 107.3% 3.7% 2.1%

Taiwan 4.2 4.0 5.0% 3.1% 3.4%

France 2.5 1.9 29.6% 1.8% 1.6%

USA 2.4 2.2 11.4% 1.8% 1.9%

Singapore 2.1 1.7 22.3% 1.6% 1.5%

Malaysia 1.5 1.6 -3.3% 1.1% 1.3%

Germany 1.4 1.0 37.7% 1.0% 0.8%

Australia 1.0 0.8 23.3% 0.8% 0.7%

Others 33.0 21.5 53.5% 24.8% 18.5%

Total 133.2 116.3 14.5% 100.0% 100.0%

Source: Bloomberg Finance L.P., DBS Bank We believe that Thailand, Singapore and Malaysia were the largest beneficiaries of the growth in outbound Chinese tourists over the last few years as the proliferation of LCCs and aggressive expansion by Chinese carriers improved their connectivity to Chinese cities.

Seat capacity between Thailand and China more than tripled... Over the last two years (June 2014 - June 2016), total seat capacity between China and Thailand more than tripled, mainly as Chinese carriers grew seat capacity by c.350%. Total seat capacity for Thailand-China flight routes

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Source: CAPA, DBS Bank ...while growth in total seat capacity were relatively less pronounced for Singapore-China and Malaysia-China routes. The two country pairs show similar growth patterns in seat capacity between June 2013-June 2016, with sluggish capacity growth in 2014 and 2015. However, the growth in seat capacity for both country pairs appear to be reviving YTD, with capacities for Singapore-China and Malaysia-China routes growing 10.2% y-o-y and 11.3% y-o-y respectively. Chinese carriers were the driving force for seat capacity growth in Malaysia-China routes as total seat capacity of Chinese carriers grew 91.2% to more than offset the 1.7% decline in seat capacity of Malaysian carriers. Total seat capacity for Singapore-China flight routes

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Source: CAPA, DBS Bank

Industry Focus


Total seat capacity for Malaysia-China flight routes

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Source: CAPA, DBS Bank Strong jump in arrivals from China to Thailand. Visitor numbers from China have grown exponentially from 2010 onwards (a CAGR of 47.9% from 2010 to 2015), and accounted for 26.5% of total visitors to Thailand in 2015, up from a mere 5.5% in 2009. Prospects also remain positive, given Thailand’s historical resilience as a value-for-money leisure and business destination, and government efforts to promote tourism. Chinese as a % of total visitor arrivals for Thailand

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China as a % of total visitor arrivals Share of total China outbound

Source: Tourism Authority of Thailand, DBS Bank Singapore leverages on China’s growing outbound travel market. After creeping up steadily from 2% (in 2009) to 2.3% of total Chinese outbound travel in 2013 (based on reports by World Bank), Singapore’s share of China’s outbound tourists appears to be plateauing but the country remains one of the key outbound destinations from China. In the coming years, given the sheer size of China’s tourism market, and supported by the fast-growing ‘middle-class’, we continue to see tremendous potential for Singapore as a premier holiday destination for the Chinese.

Singapore’s share of total Chinese outbound travellers

Source: STB, World Bank, DBS Bank China is the third largest source of visitors to Malaysia behind Singapore and Indonesia. Visitor numbers from China to Malaysia have grown from under 800,000 in 2007 to nearly 1.7m in 2015, representing a CAGR of 9.9% over the period. As a percentage of total tourist arrivals in Malaysia, Chinese tourists have risen from 3.8% in 2007 to 6.5% in 2015. In the first three months of 2016, the number of Chinese tourists into Malaysia have risen by an impressive 35% y-o-y and could see an even stronger performance for the rest of the year following the official launch of e-visas for Chinese tourists from March to December 2016. Chinese as a % of total visitor arrivals for Malaysia

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0.00.20.40.60.81.01.21.41.61.82.0

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Chinese tourists (m) LHS % of total (RHS)

Source: Tourism Malaysia, DBS Bank Chinese are among the biggest spenders in Singapore... Although Indonesian tourists are higher in numbers (17.9% of arrivals in 2015 compared to China’s 13.8%), China is the largest single contributor to total tourism receipts – dwarfing the expenditures of Indonesians on a per tourist basis.

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Visitors (m )

Tota l v isitors from China (LHS) Sha re of tota l China outbound

Industry Focus


Accommodation, 26.2%

Shopping, 27.1%

Food & Beverage,

18.4%Entertainment,

11.6%Local

Transport, 9.5%

Sightseeing, 5.6%

Miscellaneous, 1.6%

Tourism receipts for 9M15 by country

Source: STB, DBS Bank …as they splurge on shopping. In contrast to the overall average of 23% in 9M15, Chinese tourists spend an astounding 45% of their total expenditure on shopping - effectively allocating a smaller proportion of their budget for accommodation relative to peers from other regions. Tourism expenditure for top 10 countries for 9M15

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Accommodation Shopping Food & Beverage Others

Source: STB, DBS Bank

Similarly for Thailand... Post the brief dip in per capita tourism receipts observed in 2009, the daily expenditure of visitors has been rising consistently, which implies that Thailand has been seeing some success in its ongoing repositioning efforts to attract higher-quality tourists (as opposed to its traditional image as a low-cost destination).

Tourism receipts (Bt per day per capita)

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Source: Tourism Authority of Thailand Accommodation, shopping and F&B are major expenditures. On average for 1H15, more than 70% of Chinese tourists’ expenditures in Thailand were spent on accommodation, shopping and F&B. Most notably, average expenditures on accommodation have been trending steadily upwards from Bt1,190 in 2008 to Bt1,473 in 1H15, which appears favourable for Thailand’s hotel industry. Spending pattern of Chinese in Thailand (1H15)

Accommodation, 26.2%

Shopping, 27.1%

Food & Beverage,

18.4%Entertainment,

11.6%Local

Transport, 9.5%

Sightseeing, 5.6%

Miscellaneous, 1.6%

Source: Tourism Authority of Thailand, DBS Bank YTD Chinese arrivals into Thailand, Singapore and Malaysia remain very strong, indicating firm growth momentum. In the first three months of 2016, the number of Chinese tourists visiting Malaysia rose by an impressive 35% y-o-y. Meanwhile, Singapore saw 47% y-o-y growth in Chinese tourists over the first quarter. Over the period, Chinese arrivals into Thailand also grew by more than 29% y-o-y.

Industry Focus


Wooing the Chinese tourist Rising consumerism – Chinese travellers a force to be reckoned with. China’s outbound tourist numbers has grown rapidly at 14.5% CAGR over the last decade, as the 31m departures made in 2005 surged to 120m by 2015. With rising disposable incomes and changing consumer habits (especially with the growing proportion of working-age millennials) fuelling consumption, the rise in outbound Chinese travel show no signs of stopping, and is likely to extend its formidable growth ahead. To capitalise on the expected growth in the lucrative Chinese tourism segment over the long term, we identify, among others, three critical areas of development for ASEAN: (i) Building quality attractions and promoting culture Building on the ASEAN edge. Comprising ten member nations, ASEAN is home to 37 UNESCO World Heritage sites - boasting a host of natural attractions such as Ha Long Bay in Vietnam, Angkor Wat in Cambodia and the Historic City of Ayutthaya in Thailand, and is also rich in cultural diversity. With plenty to offer, it is crucial that ASEAN members step up on marketing efforts to cohesively promote the region as a single destination of choice to the well-heeled Chinese. Investments in tourism infrastructure. To complement its natural attractions, the availability of and accessibility to modern comforts, amenities and attractions could further cement the attractiveness of ASEAN as a tourist destination. Over the last five years, some of the key attractions that were launched or refreshed by member countries include:

Country Attraction Launch

Brunei River Cruise MV Sentosa 2014

Revamped Jerudong Park Playground 2014

Cambodia Grand Panorama Museum 2014

Indonesia Indonesia International Convention and Exhibition Center

2014

Ancol Dreamland 2011

Malaysia The Shore Oceanarium Meleka 2014

Legoland® Malaysia 2012

Philippines City of Dreams Manila 2014

Singapore Gardens by the Bay 2012

Thailand Central Plaza Nakhon Ratchasima 2015

Vietnam Grand Ho Tram Strip 2013

Source: Various news agencies, DBS Bank

Major upcoming tourism infrastructure slated for launch over the next two years include:

Country Attraction Expected Completion

Indonesia Funtasy Island Resorts 2016

Malaysia Movie Animation Park Studio 2016

20th Century Fox World 2017

Philippines Manila Bay Resorts 2016

Singapore Changi Jewel 2016

Thailand Rama IX Super Tower 2018

Source: Various news agencies, DBS Bank (ii) Have tourism-friendly policies in place Stimulating demand with the right policies. According to WTTC, visa policies are among the most important policies that influence international tourism. Leisure travellers see visas primarily as a formality with various inherent costs, both direct and indirect, and when deemed to be too high, could serve as a major deterrent to these prospective visitors. While most governments prefer to maintain the use of entry visas, which are often useful in enhancing border security, controlling the length of stay and activities of travellers, and in generating revenue, we believe that there is room to improve existing visa policies and processes, which could boost visits significantly. Recommended visa reforms. An analysis jointly conducted by the UNWTO and WTTC identified five important areas of opportunity for the facilitation of entry visas, such as: 1) Improving the delivery of information, 2) Facilitation of current visa process, 3) Instituting eVisa programmes, and 4) Establishing regional agreements. This would essentially allow travellers from a third country to move freely between member countries, once admitted by one of the participating countries. We also note that such agreements have already been ratified for select members of the ASEAN region. Pulling Chinese visitors through easier tourist visas. With the rising prominence of China as a key source market, most governments have been easing visa requirements for Chinese tourists progressively. We look at the visa policies instituted by ASEAN countries for Chinese tourists in the table below:

Industry Focus


Visa policy for outbound Chinese tourists into

ASEAN

Country Visa policy Max. Duration

Brunei Visa on arrival (subject to prior approval through travel agent or local guarantor)

14 days

Cambodia Visa on arrival 30 days

Indonesia Visa-free 30 days

Laos Visa on arrival 30 days

Malaysia Visa-free (Mar to Dec 2016 only) 15 days

Visa required (E-Visa available) 30 days

Myanmar Visa required (E-Visa available) 30 days

Philippines Visa required 30 days

Singapore Visa required (E-Visa available) 30 days

Thailand Visa on arrival 15 days

Vietnam Visa required (E-Visa* available) 90 days

*Note that the E-visa application process for Vietnam varies slightly

Source: Embassies and tourism agencies of respective countries, DBS Bank (iii) Growing connectivity Through more direct flights between ASEAN and Chinese cities. In hopes of generating higher Chinese inbound travel, the tourism boards of various ASEAN member countries have been working more closely with LCCs and Chinese carriers to increase connectivity between their respective countries and Chinese cities, especially Tier 2 and 3 cities, whose growing middle-class population should lead to higher disposable income and greater propensity to travel going forward. In 2016, AirAsia commenced new flights from Wuhan to Kota Kinabalu this year, while AirAsia X shared plans to launch two more routes to China in the second half of the year. Boosting airport infrastructure. ASEAN governments are making concerted efforts to expand major airports to cater for growing visitor arrivals, and for some countries, to alleviate already congested airports. These efforts generally involve a) expanding the current airport, b) promoting and upgrading a secondary airport, or c) a combination of both. Singapore and Malaysia are focused on expanding capacity at the current capital airports (given ample land around the current sites), while Indonesia and Thailand are employing a combination of upgrading works and the use of secondary airports in nearby locations to cater for future growth. In the case of the Philippines, it has been trying to persuade more airlines to use nearby Clark International Airport as a

gateway, while also planning for upgrading at other regional airports around the country. ASEAN5 Capital Airports Arrivals vs Capacity

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Source: CAPA, Innovata For Thailand’s Suvarnabhumi Airport, demand (53m passengers in 2015) has quickly exceeded capacity (45m passengers) despite a recent upgrade and plans are afoot to increase capacity to 60m by 2017. At the same time, Don Mueang Airport (the previous capital airport of Thailand) officially reopened in 2012 and can handle up to 30m passengers currently with its two terminals, and help to ease the situation at Suvarnabhumi. Indonesia has ongoing expansion plans for its Soekarno Hatta Airport to upgrade its capacity to 65m passengers by 2020, against its end-2015 capacity of 26m (by end-2016 this should improve to 38m). This should help ease the situation for ASEAN’s most congested airport, which handled 54m passengers in 2015. With secondary airport Halim Perdanakusuma serving domestic flights from 2014 onwards, this should also help cater for demand. Philippines’ main airport Ninoy Aquino International Airport has operated at or beyond its capacity of 31m passengers for a number of years now. Short-term plans to alleviate congestion have revolved around promoting Clark International Airport as an alternative gateway while there is a proposal currently under study to develop the Danilo Atienza Air Base as the new international gateway for Manila, as a 50m-a-year terminal with two runways. Singapore already has plans to expand its Changi Airport from the current capacity of 66m passengers per year to 86m by 2020 (and 132m by 2025). Assuming 5% p.a. growth in arrivals, this would cater for growth beyond the next decade. Meanwhile, Malaysia’s Kuala Lumpur International Airport is also catering ahead for future growth, by planning to hit an annual capacity of 95m passengers by 2020, nearly double the actual throughput of 49m passengers in 2015.

Industry Focus


Changi Capacity vs Traffic (Historical and Forecasted)

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Source: CAPA, Innovata

Besides plans for the capital airports of the ASEAN 5, there are numerous other planned expansions or new airports in the works within the region, as well as recently completed expansions, as seen in the table below.

These recent completions or plans are definitive proof that ASEAN governments are planning well ahead to cater for the expected growth in travel, particularly for tourists: Other significant recently completed or planned airport expansions in ASEAN

Airport Location Status Comments

Thailand

Phuket Intl Phuket Expansion Recently upgraded capacity to 12.5m passengers from 7.5m

Krabi Krabi Expansion To raise capacity from 3m to 5m; date T.B.D.

Vietnam

Noi Bai Intl Hanoi Expansion US$1.7bn expansion planned, for two new terminals and one runway

Long Thanh Intl Ho Chih Min New New airport to replace current Tan Son Nhat Intl Airport

Philippines

Mactan Cebu Intl Cebu Expansion Increase capacity from 4.5m to 25m by 2018

Indonesia

Juanda Intl Surabaya Expansion Plan to increase capacity sixfold to 75m passengers by 2020

Buleleng Bali New New airport in Bali with two runways in Buleleng, still unnamed

Kuala Namu Intl Medan Expansion To increase capacity from 8m in 2013 to 25m by 2020

New Yogyakarta Yogyakarta New New airport to handle 30m passengers by 2020

Malaysia

Kota Kinabalu Sabah Expansion Plans to increase capacity from 9m to 16m

Penang Intl Penang Expansion Plan to increase capacity from 6.5m to 10m by 2018 in two phases

Singapore

Seletar Singapore New New passenger terminal by 2018 for turboprop aircraft operations

Myanmar

Yangon Intl Yangon Expansion Recently upgraded to handle 6m passengers a year, from 2.7m

Hanthawaddy Intl Yangon New New airport to handle 30m passengers a year by 2022

Cambodia

Phnom Penh Intl Phnom Penh Expansion Doubled capacity in 2016 to handle 5m passengers

Siem Reap Intl Siem Reap Expansion Doubled capacity in 2016 to handle 5m passengers

Source: CAPA, Innovata

Industry Focus


Risks and Concerns

Risk of a substantial China slowdown. Much of the high growth in outbound Chinese tourism in the last decade can be attributed to the strong growth in disposal incomes of the Chinese, as the country’s economy grew firmly. We could see Chinese arrival growth into ASEAN start to decelerate or even decline if China goes into a substantial slowdown. A weaker RMB could affect Chinese arrivals into ASEAN. The RMB has generally been strengthening against major ASEAN currencies such as the Thai Baht and Singapore Dollar, making it more affordable for Chinese tourists to visit these countries. A significant weakening of the RMB versus ASEAN currencies could slow the growth of Chinese arrivals into the region.

Thai Baht to Chinese Yuan

Source: Thomson Reuters, DBS Bank Singapore Dollar to Chinese Yuan

Source: Thomson Reuters, DBS Bank

Regulatory and security risks. While ASEAN’s borders have increasingly become more open to Chinese travellers, especially tourists, the reversal of this progress due to regulatory changes or increased security concerns would have a negative impact on arrivals. For example, an escalation of the current situation over the South China Sea dispute could potentially result in the tightening of entry into certain countries. Another example was when Thailand imposed martial law in May 2014 following a political coup, leading to a decline in overall arrivals into the country (including Chinese visitors).

Unforeseen incidents and accidents. Negative publicity can have an adverse effect on tourism. For example, the MH370 disappearance and perceived slow government response received poor press in China, and the negative publicity from the incident led to a sharp decline in Chinese tourist arrivals for a period after. The coup and protests during periods of social unrest in Thailand also severely hindered Chinese tourism arrivals. For instance, the TAT (Tourism Authority of Thailand) estimated that the political unrest in the first half of 2014 could have cost Thailand c.US$2.7bn in lost revenues.

Backlash against cultural differences and behaviour. With many Chinese travelling abroad for the first time in large numbers, there will inevitably be instances of cultural differences and misunderstandings, which could lead to local backlash or resistance to such travellers. This could then lead to lower visitor arrivals either due to local resistance, a reluctance to visit due to the bad press, or a combination of both. In a more pronounced example, backlash in Hong Kong towards Chinese visitors have led to a decline in arrival numbers into the city in 2015, despite the Chinese travelling abroad in record numbers.

4

4.2

4.4

4.6

4.8

5

5.2

5.4

5.6

5.8

6

0.15

0.16

0.17

0.18

0.19

0.2

0.21

0.22

0.23

Industry Focus


DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte

Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document

may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to

change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard

to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of

addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal

or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of

profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This

document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or

persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it

may not contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research

department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction

in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 9 Jun 2016, the

analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended

in this report (“interest” includes direct or indirect ownership of securities).

Industry Focus


COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have proprietary positions in

Airports of Thailand, Singapore Airlines, CDL Hospitality Trusts, Minor International, Thai Airways, Ascendas Hospitality Trust, OUE Hospitality Trust, Ascott Residence Trust, Far East Hospitality Trust recommended in this report as of 30 Apr 2016

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity

securities of Ascott Residence Trust, Far East Hospitality Trust as of 30 Apr 2016 4. Compensation for investment banking services: DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for

investment banking services from Singapore Airlines, OUE Hospitality Trust, Ascott Residence Trust as of 30 Apr 2016 DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek

compensation for investment banking services from OUE Hospitality Trust as of 30 Apr 2016 DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities

for OUE Hospitality Trust, Ascott Residence Trust in the past 12 months, as of 30 Apr 2016 DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as

a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

5. Directorship/trustee interests: Peter Seah Lim Huat, Chairman of DBS Group Holdings, is a Deputy Chairman of Singapore Airlines as of 29 Feb 2016

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Industry Focus


Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only

intended for institutional clients only and no other person may act upon it.

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd

12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888

Company Regn. No. 196800306E

regional industry focus asean travel & hospitality brunei darussalam* cambodia indonesia lao pdr...

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