Amara Holdings - RHB Invest 2017-04-11: Shanghai Hotel a Near-Term Catalyst

AMARA HOLDINGS LTD A34.SI

Amara Holdings - Shanghai Hotel a Near-Term Catalyst

We initiate coverage on Amara with a BUY call and SGD0.88 TP (69% upside).
Its new 343-room hotel in Shanghai is expected to start operating in 3Q17, and we see it as a key catalyst for a potential share price re-rating.
The potential revenue enhancement could be in excess of SGD20m, which is > 24% of its FY16 revenue.
Amara currently trades at a P/RNAV of 0.38x, i.e. lower than peers’ P/BV average multiple of 0.8x.

In May or June, shareholders stand to receive final and special dividends totalling 3 cents, which implies a dividend yield of c.6%.

Company Background

Amara is a home-grown integrated lifestyle group that is principally engaged in three business areas, namely:
1. Hotel investment and management (HIM);
2. Property investment and development (PID);
3. Specialty restaurants and food services.
Amara owns and operates three hotels.
They are the:
1. 388-room Amara Singapore, which is located next to the Tanjong Pagar MRT Station;
2. 140-room Amara Sanctuary Resorton Sentosa Island;
3. 250-room Amara Bangkok, which is located on Surawong Road.
An additional hotel, the 343-room Amara Signature Shanghai (of 343-room) is scheduled for soft opening in 3Q2017.
Amara’s revenue mainly comes from its HIM and PID divisions.

Hotel investment and management (HIM)

The group’s HIM division accounted for 76.4% of FY16 revenue. It also accounted for a 30% share of EBIT last year. Looking forward, we are optimistic on the sector. This business comprises Amara’s four hotel assets.

Amara Singapore –

Conveniently located next to the Tanjong Pagar MRT Station within Singapore’s bustling central business district (CBD), the Amara Singapore is the group’s flagship city centre hotel. Refurbished in 2011, this 388-room facility includes a:
1. Collection of chic-restaurants;
2. Lobby with a minimalist theme;
3. Contemporary Balinese-style resort pool;
4. Specially-designed rooms;
5. Spa...
...to provide a luxurious inner-city living experience for guests.
In addition, the Amara Singapore’s Grand Ballroom has a seating capacity of 500 and four function rooms to cater to events of all scales, ie from weddings and social functions to meetings and exhibitions.

Amara Sanctuary Resort Sentosa –

Amara’s first-ever boutique resort provides a modern luxury experience within the seclusion of an exotic tropical garden setting. Targeting discerning individuals that seek respite from the urban hustle and bustle, this 140-room resort boast a unique combination of contemporary design and 5-star hotel facilities.
Set amidst 3.8ha of gardens and a natural tropical rainforest that overlooks the South China Sea, Amara Sanctuary Resort’s villas offer comfortable, luxurious living with state- of-the-art facilities. This makes them suitable for both business and leisure purposes. Guests may also choose to stay in the privacy and tranquillity of the Courtyard and Verandah Suites for a taste of contemporary colonial style.

Amara Bangkok –

Located along Surawong Road, which is parallel to Silom and Sathorn Roads, the Amara Bangkok is the group’s first entry into Thailand. It is situated in one of the most vibrant areas in Bangkok, an area known for its rich and colourful local entertainment and shopping activities. It is also Bangkok’s financial district.
The 250-room hotel includes: i. The chic Element restaurant; ii. A rooftop pool; iii. A lobby bar; iv. Comprehensive meetings, incentives, conferences and exhibition (MICE) facilities to cater for tourist and business traveller needs alike.
Designed as an exciting business and leisure hotel, the Amara Bangkok has been well received and achieved a high occupancy rate since its opening in 2015.

Amara Signature Shanghai –

Amara Signature Shanghai is a mixed-use development that would comprise a 343-room hotel, retail centre and office building.
Located at the junction of Jiaozhou Road and Changshou Road in Puxi, Shanghai, this development is expected to benefit from its strategic location within the city centre and capitalise on Shanghai’s renowned status as one of the world’s top financial centres.
Amara Signature Shanghai’s luxurious 5-star hotel blends with the city’s rich heritage and comes with destination dining, modern amenities and impeccable service as standard. The project’s retail centre is slated to feature popular brands in the food & beverage (F&B), entertainment and lifestyle segments. This ought to provide a variety of choices to executives working around this area.
Built to Grade A office specifications, the office space portion is set to offer a conducive environment for business operations.

Property investment and development (PID)

100 AM.

100 AM is the only full-fledged shopping centre in the west end of Singapore’s CBD and is well positioned to benefit from the rejuvenation of the Tanjong Pagar District.
Opened since 2012, the 126,000 sqf retail podium has enjoyed overwhelming response from residents, office workers, professionals, business travellers and tourists due to its diverse and attractive retail mix. This includes outlets from FairPrice Finest, Koufu Food Court and a line-up of restaurants.
100 AM also includes a 12-storey office building that is a walking distance from the Tanjong Pagar MRT Station. It is also easily accessible by bus or car. As a result, it has enjoyed almost full occupancy since its opening.

M5 –

M5 is a 33-unit residential boutique development housed in a 12-storey, single block. Designed by award-winning architect Mr Yip Yuen Hong and located in the heart of the city, M5 offers an exquisite collection of 1- and 2-bedroom apartments as well as penthouses. This makes it an investment and residence option that is a cut above the rest.
Inspired by a gem stone’s geometry, this freehold development is a stone’s throw away from many prestigious educational institutions as well as Orchard Road.

Killiney 118 –

An exclusive 6-storey, 30-unit residential block with a rooftop pool freehold development, Killiney 118 is situated in the prime residential enclave of District 9.
Designed to appeal to singles and couples that seek the tranquillity in their homes and proximity to Orchard Road, the 1- and 2-bedroom apartments were all sold out in 2015 despite the tepid residential market at the time.
Killiney 118 won the 13th SIA Architecture Design Awards for Residential Projects in 2013. It also landed the Certificate of Appreciation Award for the National Environment Agency’s Skyrise Greenery Award in the same year.

CityLife@Tampines –

Singapore’s first luxury hotel-inspired executive condominium offers 2-, 3-, 4- and 5-bedroom sky suites and penthouse units. CityLife@Tampines is a 541-unit executive condominium that boasts a host of luxury hotel-inspired design features and services, including:
1. A home concierge service;
2. A 100m infinity pool;
3. Resort-style landscaping.
This executive condominium, which received its temporary occupation permit (TOP) on 3 Feb 2016, is a joint development between Amara, Kay Lim Holdings Pte Ltd and SingHaiyi Group Ltd.

Investment Merits

Amara owns two hotels in Singapore and one in Bangkok.

In addition, a hotel based in Shanghai is scheduled to start operations in 3Q17. Visitor arrival growth into these three cities could contribute directly to the group’s revenue growth in the quarters and years ahead.

Benefiting from growth in visitor arrivals into Singapore.

In 2016, visitor arrivals into Singapore rose by 7.7% YoY to 16.4m. This was driven particularly by visitor arrivals from China surging by 36% to 2.9m. The STB remains optimistic on visitor arrival growth into the island republic.
The bureau forecasts for 2017 visitor arrivals to range between 16.4m and 16.7m, while revenue from tourism would be in the range of SGD25.1-25.8bn (a growth of 1-4% YoY).

Stronger visitor arrivals into Thailand.

In 2016, there were 32.6m visitor arrivals in Thailand, resulting in a YoY growth of 8.9%. On average, visitors to the kingdom spent THB4,800 per day and stayed about 10 days.
The Amara Bangkok should benefit from further growth in arrivals into Thailand.
While the Tourism Authority of Thailand (TAT) forecasts for 2017 visitor arrivals of 34.4m, we estimate this figure to be at 35m based on the way arrivals happened in 1Q17.

Revenue catalysts from its hotel in Shanghai.

The Amara Signature Shanghai is scheduled to commence operations in 3Q17. This mixed-use development, comprising a 343-room hotel, retail centre and office building, would give a boost to Amara’s revenue.
Of the total 58,000sqm for the Shanghai development, 80% would be for the hotel, with another 12% for retail and the 8% balance for the office space. There could be some initial losses from the hotel operations, but management expects the retail and office segments to be profitable from the start.
We expect significant contributions to earnings by FY18.

Amara has three residential property development projects in the pipeline:

M5 – a boutique development (under construction) located at 5 Jalan Mutiara (close to Orchard Road and River Valley Road). It is a freehold 12-storey, single block residential development with gross floor area of 2,355sqm. The land purchase price was SGD15.5m;
29 & 31 Newton Road – a freehold 5-storey residential development (yet to-be- launched) with 56 units that is located near to the Newton and Novena Mass Rapid Transit (MRT) Stations. It has a gross floor area of 3,941 sqm. The land purchase price was SGD38.8m;
15 Bedok Avenue – a freehold landed residential development (yet to-be-launched) with two pairs of 3-storey semi-detached houses, with a gross floor area of 1,561sqm. The land purchase price was SGD10m.

Significant valuation upside.

Amara’s balance sheet reflects only the cost of the hotels. We believe there is a significant valuation upside for the group for Amara Singapore, Amara Sanctuary Resort Sentosa and Amara Signature Shanghai.
Factoring in the unrealised valuation surpluses, Amara has a RNAV of c.SGD1.36 per share. Hence, the group currently trades at a P/RNAV multiple of 0.38x.
Our 2017F net profit of SGD12m represents a good growth from 2016’s adjusted SGD10m (after stripping off a one-time JV gain).
2018 earnings are expected to expand further with a full 12-month contribution from Amara Signature Shanghai.

Catalyst from Amara Signature Shanghai to trigger share price re-rating.

The impending commencement of Amara Signature Shanghai’s start of operations could re- ignite investor interest in the group. This could trigger a re-rating of share price upwards closer to Amara’s RNAV level.
We have a BUY recommendation on this counter with a TP of SGD0.88, which is pegged to 0.65x P/RNAV. This is conservative when compared with its peers’ P/BV of 0.8x.

Adjusted gearing of a reasonable 0.38x.

Amara has a relatively high net gearing of 0.79x. If we adjust the hotel assets to market price (instead of cost), then the effective gearing is a much lower 0.38x.

Management has plans to further expand outside of Singapore

Management has plans to further expand outside of Singapore and is looking for opportunities in ASEAN, Australia and Japan.
Expansion can be done via greenfield developments (such as Amara Bangkok or Amara Signature Shanghai) or brownfield, depending on opportunities.

Valuation

Amara trades at a P/RNAV of 0.38x. The impending commencement of operations of Amara Signature Shanghai could re-ignite investor interest in this counter, This, in turn, could trigger an upward re-rating of its share price upwards, ie closer to its RNAV level.
The full valuation on Amara Hotel was done on 31 Dec 2015. It indicated a surplus on revaluation of the leasehold land and buildings that amounted to SGD318m. This revaluation gain was not incorporated into the group’s financial statements.

The full valuation on the land use rights and capital project in progress for land located at 582 and 600 Changshou Road, Shanghai (done on 31 Dec 2015), indicated that the surplus amounted to SGD36m. This revaluation gain was also not incorporated into the financial statements:

		SGD m
i. As of 31 Dec 2016, equity attributed to shareholders	=	374.0
ii. Surplus for Amara Hotel	=	317.8
iii. Surplus for the project in Shanghai	=	36.2
iv. Surplus for Amara Sanctuary Resort Sentosa	=	54.8
Total	=	782.8

Number of shares (m) (as at 10 Apr)	=	575
RNAV per share (SGD)	=	1.36
Share price on 10 Apr (SGD)	=	0.52

We have a BUY recommendation on Amara with a TP of SGD0.88, which is pegged to 0.65x P/RNAV. This is conservative when compared with its peers’ average P/BV of 0.8x.

Key Risks

Visitor arrivals could be adversely affected by numerous factors.

These include negative weather, health or political developments. However, given Amara’s geographical diversification, ie a presence in different cities in Asia, the risk is more manageable, in our view.

Financial Analysis And Forecasts

FY16 net profit rose by 159% to SGD37.1m, with growth attributed to a JV.

This JV completed the CityLife@Tampines, an executive condominium development, in 2016. Stripping out the gains from this JV, Amara would have recorded a 2016 net profit of c.SGD10m.
After the strong set of 2016 results, the group declared a final dividend of 1 cent and a special dividend of 2 cents. The total dividend of 3 cents resulted in a dividend yield of c.6%, which is expected to be paid in May or June.
Below are our assumptions for the group’s Shanghai hotel operations from FY18:
1. Average room rate of CNY1,000 per night;
2. Occupancy rate of 66% out of the 343 rooms total;
3. Retail space rental of CNY500 psm per month;
4. Office space rental of CNY350 psm per month.

Industry Outlook

In 2016, total visitor arrivals into Singapore expanded by 7.7% YoY, with visitor arrivals from China surging by 36% YoY. We believe visitor arrival growth into the island republic is to remain steady going forward.
The Tourism Authority of Thailand (TAT) forecasts visitor arrivals of 34.4m into Thailand in 2017. This represents a significant rise over the previous year’s 32.6m. The increase would be positive for hotel occupancy at Amara Bangkok.
Meanwhile, the rising number of visitor arrivals in Shanghai is a positive for the Amara Signature Shanghai when it starts its operations in 3Q17.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-11

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