Amara - RHB Invest 2018-05-15: Robust Residential Property Launch Pipeline

Amara - RHB Invest 2018-05-15: Robust Residential Property Launch Pipeline AMARA HOLDINGS LTD SGX: A34

Amara - Robust Residential Property Launch Pipeline

  • After talking to management, we remain optimistic about Amara. The group recorded a 32% y-o-y jump in 1Q18 net profit, driven by the hotel investment and management segment.
  • Looking ahead, the Singapore hotel segment should benefit from more travellers and muted new hotel room supply in 2018.
  • The 343-room Amara Signature Shanghai, which was soft launched in Jan/Feb 2018, has close to 300 rooms opened for travellers currently.
  • In 2H18, management is targeting to relaunch the balance 26 residential units at M5@Jalan Mutiara (of which seven units were sold earlier), and launch the freehold 56-unit residential development at Newton Road. These two projects are potential contributors to total revenue.
  • We believe the positive news flow would narrow the discount between the stock’s traded price and our RNAV estimate.
  • Maintain BUY and Target Price of SGD0.88, pegged to P/RNAV of 0.65x and offering 69% upside.

1Q18 net profit of SGD2.1m was 32% higher y-o-y.

  • Whilst it accounted for 15% of our full-year net profit estimate, 2H18 earnings are expected to be stronger. As such, we deem the results as in line with our expectations. 1Q18 revenue was up 13% y-o-y, due to higher revenue at the hotel investment and management segment.

Expect upswing in Singapore hotels.

  • Management believes its hotels in Singapore would benefit from an upswing in leisure and corporate travellers, as well as relatively muted new hotel room supply in 2018.

Revenue catalyst from its Shanghai hotel.

  • The 343-room Amara Signature Shanghai was soft launched in 1Q18, and contributed SGD1m to 1Q18’s revenue. This 30-storey international 5-star hotel is within the inner core city centre of Puxi, Shanghai. As of early May 2018, close to 300 rooms were opened for travellers. 
  • 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 op erating cash flows in its second year of operation.
  • 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 surplus.

  • 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 per share. At current levels, the stock is trading at P/RNAV of 0.4x. Our SGD0.88 Target Price is pegged to P/RNAV of 0.65x – this suggests a 35% discount to its RNAV, which we believe is conservative given the mid-20s discount to RNAV for SGX-listed peers.

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, and/or political developments.

Leng Seng Choon CFA RHB Invest | 2018-05-15
SGX Stock Analyst Report BUY Maintain BUY 0.880 Same 0.880