HPL posted a net profit of $13.4m for 3Q08 - a 12% decline yoy, despite seeing revenue grow by42.2% to $157.0m in the same period. Profits were weighed down by a $6.4m pre-tax fair valueloss in held-for-trading investments which was partly mitigated by a $1.7m tax write-back. On acore earnings basis, we estimate that HPL’s 3Q08 earnings grew 32.3% yoy, 10.9% qoq. YTDnet profit of $49.4m disappointed, accounting for only 64% of our full-year estimate.

Visitor arrivals in Singapore have been on a qoq decline since July, and the Singapore TourismBoard expects the visitor arrivals and tourism receipts for 2008 to fall short of their targets of10.8m and $15.5b respectively. Even the Singapore Grand Prix held in late September could notprevent a decline in visitor arrivals for the month of September.

We expect 2009 to be a challenging year for tourism, not only in Singapore, but globally. This willnegatively impact HPL’s hotel earnings, which is expected to be the main contributor to totalearnings as we do not foresee it launching its residential projects anytime soon.

HPL’s residential landbank comprises Beverly Mai, Horizon Towers, Farrer Court and GillmanHeights, with an attributable GFA of about 1.4m sq ft. Due to the poor sentiments in the propertymarket, exacerbated by the global recession, we expect HPL to defer the residential launchesindefinitely (note: CapitaLand is the project leader for Farrer Court and Gillman Heights).

In line with the weak outlook for world tourism going into 2009, as well as assuming residentiallaunches to begin only in 2010, we have reduced our FY08 and FY09 earnings forecasts by13.4% and 51.2% respectively. Our target price is lowered to $1.53, based on a 60% discount toRNAV. While HPL has a stable of plum hospitality assets (which are not marked-to-market unlikeinvestment properties), we see a lack of positive catalysts in this economic climate. Downgradeto HOLD.