SG Hospitality - OCBC Investment 2017-01-13: 2017 – Tough Year, Good Opportunity

Singapore Hospitality Sector OUE HOSPITALITY TRUST SK7.SI ASCOTT RESIDENCE TRUST A68U.SI CDL HOSPITALITY TRUSTS J85.SI

SG Hospitality - 2017 – Tough Year, Good Opportunity

Visitor arrivals in Nov 2016 showed a buck in the trend of declining growth rates since Mar this year, according to figures from the Singapore Tourism Board. YoY growth for the month was +2.5% (vs. -0.9% YoY in Oct), while growth for the first 11 months came up to +7.9%. Visitor days are up +2.2% YoY for the Jan-Nov period.

We are cautious with our base case of single-digit decline in RevPARs for 2017 and note the downside risk of slowing demand on top of a ~6% supply injection.
On the other hand, business sentiment worldwide appears to be more positive post US elections, which may be a boost for corporate travel.
With the prospect of RevPAR stabilization in 2018, we believe that 2017 will present important opportunities for dollar-cost averaging for our top picks given the weak operating outlook. In particular, OUE Hospitality Trust (OUEHT) has two key catalysts for DPU growth that we expect to serve as a buffer against the poor operating conditions this year: full-year contributions from anchor tenants Victoria’s Secret and Michael Kors in Mandarin Gallery and contributions from the Crowne Plaza Changi Airport’s extension.
We are positive on OUEHT [BUY; FV: S$0.73], Ascott Residence Trust (ART) [BUY; FV: S$1.24], and CDL Hospitality Trusts (CDLHT) [BUY; FV: S$1.48].
Maintain NEUTRAL on the sector.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-01-13

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.730 Same 0.730

BUY Maintain BUY 1.240 Same 1.240

BUY Maintain BUY 1.480 Same 1.480