Amara Holdings - RHB Invest 2017-10-09: Gaining From Macroeconomic Hotel Sector Tailwind

Amara Holdings - RHB Invest 2017-10-09: Gaining From Macroeconomic Hotel Sector Tailwind AMARA HOLDINGS LTD A34.SI

Amara Holdings - Gaining From Macroeconomic Hotel Sector Tailwind

  • Amara Signature Shanghai’s commencement of operations is likely to be in 4Q17, i.e. slightly behind our initial assumption. Thus, we cut our 2017F revenue and net profit by 2% and 14% respectively. Despite this, Amara remains attractive, as it trades at 0.39x P/RNAV
  • Recent news flow of potential buyers scouting to buy Singapore hotel properties is a positive for the sector. Sharply lower new hotel room supply in 2018 should keep ARR firm too. In addition, expectations of more visitor arrivals add icing to the cake. 
  • Maintain BUY and SGD0.88 Target Price (66% upside).

Higher occupancy rate for Amara Singapore. 

  • For the first eight months of 2017, Amara Holdings (Amara) guided for an 89% average occupancy rate (AOR) for Amara Singapore – higher than 8M16’s 88%. However, average room rate (ARR) for 8M17 was SGD188, ie 2% lower YoY.

Amara Sanctuary performing well. 

  • For Amara’s other Singapore hotel, Amara Sanctuary, 8M17 AOR stood at 73%. This was sharply higher than 8M16’s 60%. ARR was also higher YoY.

Reduction in new Singapore hotel room supply in 2018. 

  • According to an article in The Business Times last week, only 266 new hotel rooms are expected to be added in 2018 (2017: 3,174). The lower supply could help raise 2018 ARR amidst mid-single-digit 2018 visitor arrival growth.

Revenue catalyst from its hotel in Shanghai. 

  • Management aims to start operating Amara Signature Shanghai in 4Q17. The development, which comprises a 343-room hotel, retail centre and office building, could boost Amara’s revenue. 
  • Whilst there could be some initial losses from the Shanghai hotel’s operations, management hopes to replicate the strong initial performance of Amara Bangkok, which turned profitable very soon after commencement of operations. 
  • We factor in significant revenue contributions from Shanghai in FY18.

Significant valuation surpluses. 

  • The group’s balance sheet reflects only the cost of the hotels. There are several significant valuation upsides for Amara Singapore, Amara Sanctuary Resort Sentosa, and Amara Signature Shanghai
  • Factoring in the unrealised valuation upsides, Amara has a RNAV of SGD1.36/share, giving a P/RNAV of 0.39x.

2018 net profit could be driven by the hotel in Shanghai. 

  • Our revised 2017F net profit of SGD10.1m is flat vs 2016’s adjusted SGD10m – this is after stripping off the 2016 one-time JV gain of SGD28m. 
  • 2018F net profit is expected to expand by 35%, with stronger Singapore ARR and a full 12-month contribution from Amara Signature Shanghai.

Key risks to our call. 

  • Visitor arrivals to the hotels operated by Amara could be adversely affected by several factors. These include negative weather, health scares, or political developments.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-10-09
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.880 Same 0.880