Reporting 1Q09 profit from successful cost cutting measures. Headline net profit of S$5.2m (-66% y-o-y, + >100% q-o-q) was ahead of consensus and our expectations. This was mainly due to the successful cost cutting measures instituted by the group, shaving off an estimated S$15m from its cost base. While EBITDA margin of 28% was lower on year, it was a marked improvement when compared sequentially.

Improved showing from hotel investment segment an encouraging sign. While Banyan Tree's owned resorts posted a 25% yoy decline to S$58m, performance was actually higher on quarter, led by increased occupancies on a group wide basis. RevPAR improved by 8% sequentially to S$215. Its Thailand operations, with a reprieve from the political unrest in Thailand, grew 11% to S$41.7m.

Entering low season. As the group enters the low season, forward bookings for Thailand and non-Thailand hotels remained lower at -28% and ?2% respectively. While we currently forecast the group to slip back slightly into the red in 2Q09, largely from lower hotel revenues due to the state of emergency that was declared back in April in Bangkok, we remain confident that the group should post an improved 2H09 performance, led by a seasonally stronger 4Q to end the year in the black. We raise our operating margins to reflect improved operational performance at its hotel segment.

Upgrade to HOLD, TP S$0.53. Notwithstanding short term operationally challenges, we like the long-term growth plans the group has in place over the next 4 years. Upgrade to HOLD, TP S$0.53 based on SOTP. This is based on 11x EV/EBITDA on its hotel business, which is pegged to its historical average trading range and 20% its international hotel peers. Catalyst for a re-rating will hinge an improved political outlook in Thailand, leading to sustained occupancies through current low season.