Amara Holdings - RHB Invest 2018-02-23: Shanghai Hotel To Drive 2018 Revenue

Amara Holdings - RHB Invest 2018-02-23: Shanghai Hotel To Drive 2018 Revenue AMARA HOLDINGS LTD A34.SI

Amara Holdings - Shanghai Hotel To Drive 2018 Revenue

  • Amara Holdings recorded 2017 net profit of SGD23.9m, which was above our SGD10.1m forecast. Stripping out the significant rise in fair value gains for investment properties and the corresponding provision for deferred taxes, earnings would have been in line with our expectations. 
  • We maintain our BUY recommendation with unchanged Target Price of SGD0.88 (61% upside). 
  • 2018 would see revenue contribution from its 343-room Amara Signature Shanghai. Weaker supply of new hotel rooms in Singapore would also support profitability at its Singapore hotel operations.

Amara recorded 2017 net profit of SGD23.9m

  • Amara Holdings recorded 2017 net profit of SGD23.9m, which was 36% lower y-o-y due to 2016’s joint venture (JV) contributions of SGD28m from a completed development project. 
  • Excluding the fair value gains for its Shanghai investment property (office and commercial building) and the corresponding deferred tax, 2017 earnings are in line with our expectations.

Revenue catalyst from its hotel in Shanghai. 

  • The 343-room Amara Signature Shanghai was recently soft launched, with 102 rooms available for booking. This 30-storey international 5-star hotel is within the inner core city centre of Puxi, Shanghai. 
  • Whilst there could be some initial losses from the Shanghai hotel operations, management is hoping to replicate the strong initial performance of Amara Bangkok, which reported positive operating cash flows in its second year.
  • We have factored in significant revenue contributions from Amara Signature Shanghai in 2018. However, 2018’s turnover is projected to be lower than 2017, mainly due to expectations of sharply lower fair value gains for investment properties.

Contributions from 100 AM Shanghai in 2H18. 

  • Adjacent to this hotel is 100 AM Shanghai, a 10,500 sqm complex comprising a Grade A office tower and a retail mall offering dining outlets and a cinema. 100 AM Shanghai is expected to have a soft opening in 2H18. Co-working space operator Kr Space, a spin-off from Ant Financial-backed 36Kr, has signed a 10-year lease for the entire office block, amounting to 4,000 sqm of constructed floor area.

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, we estimate that Amara has an RNAV of SGD1.36/share, giving a price-to-RNAV of 0.4x. Our SGD0.88 Target Price is pegged to a price-to-RNAV of 0.65x.

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/ 2018-02-23
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.880 Same 0.880