According to Thailand’s Immigration Bureau and Royal Thai Police, tourist arrivals to Suvarnabhumi Airport in Bangkok fell 27% to 2.1m people in Oct-Dec 08. Our FY08 earnings estimate for Banyan Tree continues to be substantially below consensus. We believe that our estimates are reflective of the adverse impact of the global economic downturn and political uncertainties. We are forecasting occupancy rates of 40-45% for Banyan Tree’s hotels and substantial RevPar declines for 4Q08, due to earlier airport sieges in Bangkok. Although the Phuket airport remained open in 4Q08, connecting flights from Bangkok were interrupted. This had affected the travel plans of Europeans, who form the bulk of Banyan Tree Thailand’s customers. Moreover, sales of its branded and unbranded residences are expected to be lacklustre as investors continue to avoid Thailand.

Management has guided that 4Q08 results are likely to be substantially lower yoy. While the hotel business has improved in Jan 09 thanks to promotions and marketing efforts by the Thai Authority of Thailand, we believe that the environment remains challenging for the luxury hotelier, as people continue to scale back discretionary spending. On the bright side, its Maldives resorts are reportedly doing well with occupancy rates of more than 90%.

Maintain Underperform and sum-of-the-parts target price of S$0.40. While Banyan Tree’s strong brand is a huge asset, its business would be affected by the global economic slowdown and disruptions in Thailand. 4Q08 results will be released by end-Feb 09.