SG Hospitality - OCBC Investment 2017-03-28: Jan RevPAR declines for Economy to Upscale tiers

SG Hospitality - OCBC Investment 2017-03-28: Jan RevPAR declines for Economy to Upscale tiers Singapore Hospitality Sector Market Statistics Hospitality REIT

SG Hospitality - Jan RevPAR declines for Economy to Upscale tiers

  • Var. in RevPAR performance.
  • A look at FX median forecasts.
  • Buy into sector on dips.

Start of 2017: Visitor days up 4.9% in Jan 

  • According to the Singapore Tourism Board (STB), Jan 2017 tourist arrivals increased 4.8% YoY as Indonesian arrivals increased 1.9% YoY while Chinese arrivals jumped 38.2% YoY. If not for this double- digit increase in Chinese arrivals in Jan 2017, total tourist arrivals would have decreased 1.5% YoY. Visitor days increased 4.9%. Overall RevPAR increased 2.7% YoY in Jan on a 3.0% increase in ARR and a 0.3 ppt decline in AOR. 
  • According to STB’s hotel tiers, the luxury segment posted a substantial increase of 15.4% YoY in Jan RevPAR, mainly due to a 14.5% increase in ADR. In comparison, Jan RevPAR for the Upscale, Mid-tier, and Economy segments changed -1.0%, -10.8%, and -8.9% YoY respectively. 
  • Given that the hospitality REITs under our coverage own hotels mainly in the Mid-tier to Upscale tiers, the Jan data points support our 2017 projection of high single-digit to low double-digit RevPAR declines for the REITs.

Currency movements: RMB expected to weaken 1.6% against SGD in 2017 

  • We looked at the average of the spot rate and 2Q, 3Q, and 4Q17 Bloomberg median forecasts for Singapore’s currency pairs with the three largest feeder markets for our tourism sector. 
  • In 2017, the RMB, IDR and MYR are expected to change 1.6%, -1.8%, and 4.1% respectively against the SGD. 
  • In 2016, Chinese arrivals grew 36.0% despite the RMB weakening 5.3%; Indonesian arrivals grew 5.9% YoY as the IDR strengthened 1.1%; Malaysian arrivals dropped 1.7% as the MYR weakened 5.7%. As with the case in 2016, we expect the impact of currency movements on tourist arrivals to be more discernible for mature markets such as Indonesia and Malaysia.

Corporate demand: IMF forecasts 3.4% in global GDP growth 

  • According to the IMF, world GDP growth is expected to pick up from 3.1% in 2016 to 3.4% this year, and 3.6% in 2018. 
  • Nonetheless, we note that the forecast is based on the assumption of near-term fiscal stimulus in the US and corresponding global spillovers; should this stimulus fail to realize as Trump faces difficulties in Congress, there may be downside risks to business sentiment and global corporate spending. 
  • In Singapore, given the challenging operational outlook this year, coupled with the prospect of RevPAR/RevPAU stabilization next year, we encourage investors to buy into the sector on dips. 
  • Within the hospitality sub-sector in the REITs space, our top pick is OUE Hospitality Trust [BUY; FV: S$0.75]. Do refer to the S-REITs sector report dated 23 Mar 2017 for our top REIT picks across all sub- sectors. 
  • We maintain NEUTRAL on the hospitality sector.

Deborah Ong OCBC Investment | 2017-03-28
OCBC Investment SGX Stock Analyst Report