Global Premium Hotels - Raising fair value to 34 S cents
- Negative RevPAR growth expected.
- Economy/mid-tier portfolio a plus.
- Collect at 29 S cents and lower.
FY16 revenue in line with expectations
- Global Premium Hotels' (GPH) FY16 revenue was within expectations.
- Revenue dropped 4.6% to S$58.3m, or 100.4% of our FY forecast, mainly due to lower hotel room revenue recognised from most of its hotels, including certain hotels which had to close for asset enhancement initiatives (AEI). The decrease was partially offset by additional contribution from certain hotels which were completed with AEI in 2015.
- Similar to what was observed for other hotel assets, FY16 AOR decreased 4.0 ppt to 77.6%, contributing to a RevPAR drop of 4.5% to S$81.5.
- Rental income was relatively stable at $1.1m.
- Consequently, PATMI dropped 19.3% to S$11.9m. NAV remained flat at around S$729.1m.
FY17 looks to be another tough year
- We expect downward pressure on 2017 RevPAR from the expected 6% growth in hotel room supply. On the demand-side, we note the faltering growth of Chinese tourist arrivals towards the end of 2016, as well as the cautious attitude of corporates pending further clarity regarding Trump’s policies.
- Given that GPH’s assets fall within the economy/mid-tier range, we expect portfolio performance to more dependent on budget leisure demand as opposed to corporate demand – we see this as a positive given global economic uncertainties.
- As we expect negative RevPAR growth in FY17, our FY17 revenue forecast is lowered from S$59.8m to S$55.4m, while PATMI drops from S$14.1m to S$10.1m.
Long-term valuation of 34 S cents
- We arrive at our fair value of 34 S cents using two methods.
- First, we apply our fair target P/B of 0.45x against FY17 book value; note that GPH’s portfolio is valued every year by independent valuers.
- Second, we apply a 35% discount to our own projected FY17 RNAV range (S$420.1m to S$754.4m), which is based on a cap rate of 4.0% to 5.5% applied to our projected gross profit (see appendix).
- Based on a triangulation of these two methods, our fair value comes up to 34 S cents from 31 S cents previously.
- We encourage investors to accumulate shares at 29 S cents and lower, and maintain HOLD on GPH in the meantime.