Amara - RHB Invest 2018-08-21: Shanghai Seen Driving 2H18 Revenue; BUY

Amara - RHB Securities Research 2018-08-21: Shanghai Seen Driving 2h18 Revenue; Buy AMARA HOLDINGS LTD SGX:A34

Amara - Shanghai Seen Driving 2h18 Revenue; Buy

  • Maintain BUY and SGD0.88 Target Pric , 85% upside, which is pegged to P/RNAV of 0.65x.
  • We remain positive on Amara following some updates from management. The 343-room Amara Signature Shanghai hotel is fully open for bookings, and management is positive that its active marketing efforts will raise occupancy levels. The soft launch for 100 AM Shanghai is scheduled for end-2018 and could add marginally to its full-year revenue.
  • Amara is also working on marketing the balance of its 33-unit M5 @ Jalan Mutiara project and hopes to launch the 56-unit Newton Road residential development at end-2018.

All 343 rooms of the Amara Signature Shanghai are open for bookings after the soft launch in January/February.

  • Amara is actively marketing the hotel to both corporate and individual travellers via various marketing channels to reach higher occupancy levels. The group also expects an increase in hotel demand, as Shanghai continues its leading position as a major tourist destination.

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1H18 earnings accounted for 26% of our full-year net profit estimate, while 2Q18 revenue was up 30% y-o-y.

  • The Shanghai hotel operation was a contributing factor, as seen in the higher revenue from the hotel investment & management and property investment & development businesses. We expect a stronger 2H18 earnings on stronger contributions from Amara’s Singapore hotel operations, as well as more stabilised operations from Amara Signature Shanghai.
  • The soft launch for 100 AM Shanghai (scheduled for end-2018) should also contribute somewhat to 2018’s revenue. However, given the slight delay vs our previous assumption, we cut 2018-2019 net profits by 11% and 12%.

We may also see some contributions from its Singapore property development projects.

  • For M5 @ Jalan Mutiara, the temporary occupation permit was in 1Q18 and Amara has been actively marketing the project since May. As for the 56-unit Newton Road residential development, management hopes to launch this by end-2018. However, the Government’s property cooling measures could possibly dampen sales over the short term.
  • Our forecast of y-o-y weaker 2018 turnover is mainly due to expectations of lower fair value gains for investment properties.

Significant valuation surplus.

  • Amara’s balance sheet reflects only the cost of its 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 0.35x. Maintain BUY and SGD0.88 Target Price, 85% upside, is pegged to P/RNAV of 0.65x, which suggests a 35% discount to RNAV.
  • Key risks to our call are visitor arrivals to Amara’s hotels being adversely affected by several factors, which include negative weather, health scares, and/or political developments.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-08-21
SGX Stock Analyst Report BUY Maintain BUY 0.880 Same 0.880