Singapore Strategy - DBS Research 2016-06-14: Theme 1 of 4 ~ Singapore hospitality nearing a bottom

Singapore Strategy - DBS Research 2016-06-14: Theme 1 of 4: Singapore hospitality nearing a bottom SINGAPORE AIRLINES LTD C6L.SI CDL HOSPITALITY TRUSTS J85.SI OUE HOSPITALITY TRUST SK7.SI

Strategy - Four themes to ride this cycle


Theme 1 : Singapore hospitality nearing a bottom


Bottoming signals are emerging. 

  • While we project a 4% y-o- y drop in 2016 RevPAR to S$201, new room supply pressures easing from 2017 will herald an improving RevPAR outlook. Thus, we believe 2016 may be the bottom in the Singapore hospitality market following a difficult 2014 and 2015 where RevPAR fell 1% and 5% respectively.

Key bright spots are the continued arrival of Chinese tourists and the earlier-than-expected recovery in Indonesian visitors. 

  • Following an extremely weak 2014 where Chinese tourist arrivals dropped 24% y-o-y to 1.7m due to the MH370 incident and political uncertainty in Thailand, the number of Chinese visitors recovered in 2015, up 22% y-o-y to 2.1m. 
  • Recovery momentum has been strong, up 47% for Chinese arrivals in 1Q16, and we estimate a 20% y-o-y increase this year. Indonesian arrivals, its largest source market for 1Q16 were robust, rising 11% y-o-y. This may be due to strengthening of the IDR versus SGD. 
  • We now project 4% y- o-y growth in tourist arrivals from Indonesia in 2016.

Overall, we are looking at a 5% growth in tourist arrivals to 16m in 2016. 

  • Proxies to benefit from this trend are Genting, Singapore Airlines, CDL Hospitality Trusts, OUE Hospitality Trust, YTL Starhill Global REIT, Fraser Centrepoint Trust and Mapletree Commercial Trust
  • Among these, our preferred picks are Singapore Airlines, CDL Hospitality Trusts and OUE Hospitality Trust.


CDL Hospitality Trusts (BUY; TP: S$1.50)

  • Although CDL Hospitality Trust’s share price has rallied by over 15% from its lows in January and the counter faced negative headlines such as 
    1. excess new room supply in Singapore, and 
    2. weakness in its Maldives operations due to soft demand, 
  • we believe it still offers compelling long- term value (discounted implied price per key) while paying investors who wait an attractive 6.7% yield (based on 90% payout ratio) for the eventual upturn. 
  • CDL HT is the cheapest REIT providing exposure to the eventual upturn in the Singapore hospitality market which may occur from 2017 as supply pressures ease.

Singapore Airlines (BUY; TP: S$12.50)

  • We continue to like Singapore Airlines as a beneficiary of the current low oil price environment. 
  • Furthermore, SIA has the potential to pay more dividends as earnings recover and also given that it has over S$3bn net cash on its balance sheet. 
  • Fuel cost savings is expected to be more substantial going forward and drive earnings recovery.


OUE Hospitality Trust (BUY; TP: S$0.75)

  • We believe OUE Hospitality Trust is one of the best positioned hospitality REITs to ride out the near term headwinds in the Singapore hospitality market as demonstrated by the 1% y-o-y increase in RevPAR in 1Q16. This is due to the superior location of its properties. 
  • Mandarin Orchard is located in the heart of Orchard Road, which will not see any major new hotel supply in 2016. 
  • Meanwhile, Crown Plaza Changi Airport (CPCA) and its upcoming extension (CPEX) is the only hotel within the Changi Airport submarket and well placed to take advantage of the c.72% expansion of Changi Airport’s passenger capacity.






Janice CHUA DBS Vickers | YEO Kee Yan DBS Vickers | LING Lee Keng DBS Vickers | http://www.dbsvickers.com/ 2016-06-14
BUY Maintain BUY 12.50 Same 12.50
BUY Maintain BUY 1.50 Same 1.50
BUY Maintain BUY 0.75 Same 0.75


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