SG Hospitality - OCBC Investment 2016-10-06: Trading at ~7% yield

SG Hospitality - OCBC Investment 2016-10-06: Trading at ~7% yield Hospitality REITs CDL HOSPITALITY TRUSTS J85.SI  ASCOTT RESIDENCE TRUST A68U.SI 

SG Hospitality - Trading at ~7% yield

  • 8th top destination for outbound Chinese.
  • Grand Prix attendance ~15% lower.
  • Maintain NEUTRAL on sector.

Increased efforts in capturing Chinese tourists 

  • According to the China National Tourism Administration, Singapore was the 8th top destination globally for outbound Chinese tourists in 2Q 2016, behind destinations such as Thailand, Korea, and Japan. 
  • Large-scale events here have increasingly been catering towards Chinese tourists. For instance, Great Singapore Sale (GSS) 2016 partnered with Chinese payments firm, UnionPay International, this year, as opposed to MasterCard, which was the official GSS card for the last 12 years. 
  • The inaugural Singapore Golden Week was also recently launched to coincide with the China’s Golden Week. 
  • We expect the Singapore Tourism Board’s active engagement with Tier 1 and Tier 2 cities in China to put Singapore in good stead going forward. Thus far, the number of Chinese tourists into Singapore has increased 49.2% YoY for the Jan-Jul period.

Lower turnout at Singapore Grand Prix 

  • According to promoter Singapore GP, the night race saw an average of 73,000 spectators for each of the three days. This was ~15% lower than the average of 87,000 spectators in attendance last year. A potential reason floated for the decline was the Zika outbreak earlier in September. However, according to our industry sources, the number of cancellations from the outbreak has been limited. 
  • Overall, we deem the impact of Zika on arrivals mild and are cautious to take the poorer Grand Prix turnout as an indication of weaker traveler sentiments in Sept.

Corporate demand still a concern 

  • While we remain optimistic about leisure demand, corporate demand continues to be a concern. 
  • We still expect most of the Singapore hotels owned by companies under our coverage to show a YoY RevPAR decline for 3Q, albeit not as steep as that for 2Q. 
  • We note that the share prices of Ascott Residence Trust (ART), CDL Hospitality Trust (CDLHT), Far East Hospitality Trust (FEHT), and OUE Hospitality Trust (OUEHT) are trading at FY16/17 forward yields of 7.1%, 7.1%, 7.0%, and 6.8% respectively. 
  • While operating challenges remain ahead, we find current valuations to be reasonably attractive. 
  • We are positive on Ascott Residence Trust (ART) [BUY; FV: S$1.24], and CDL Hospitality Trust (CDLHT) [BUY; FV: S$1.53]
  • Maintain NEUTRAL on the sector.

Deborah Ong OCBC Investment | 2016-10-06
OCBC Securities Analyst Report BUY Maintain BUY 1.24 Same 1.24
BUY Maintain BUY 1.53 Same 1.53