Amara - RHB Invest 2018-11-14: Stronger Revenue From Hotel Segment; BUY


Amara - Stronger Revenue From Hotel Segment; BUY

  • Maintain BUY with a SGD0.88 Target Price, 110% upside, pegged to a P/RNAV of 0.65x.
  • We remain bullish on Amara following its 3Q18 results release, which saw revenue rising 22% y-o-y on strength in the hotel space.
  • Looking ahead, we see further improvements from newly-opened Amara Signature Shanghai’s margins.
  • Revaluation gains for investment properties could potentially bump up 4Q18 earnings as well.

Earnings in line.

  • Amara reported a 3Q18 net profit of SGD2.5m, up 132% q-o-q but down 22% y-o-y. 9M18 earnings of SGD5.7m represented 47% of our 2018 forecast vs 9M17 net profit of SGD6.4m, which accounted for 13% of 2017’s earnings.
  • Net profit is seasonally stronger in 4Q due to investment property revaluation gains. We view 3Q18 earnings as in line.
  • The 22% y-o-y increase in revenue was due to higher topline in the hotel investment & management segment across geographies.
  • Amara’s two Singapore hotels performed better in 9M18 vs 9M17, particularly Sentosa Sanctuary – both occupancy and room rates did well. However, the newly opened hotel in Shanghai incurred higher expenses and property tax, while unrealised FX losses dampened net profit on a y-o-y comparison.

Amara Signature Shanghai is operating at close to 90% occupancy.

  • Within the first few months of operations, the hotel is cash flow positive. Management is now working on refining the client market segments, which should help raise margins. Amara targets this hotel to be net profit positive in 2019.

The company recently launched 10 Evelyn @ Newton.

  • The land was acquired two years ago and the project has 56 units. As at October, close to 5% of this project has been sold.

Revaluation gains could bump up 4Q18 net profit.

  • When Amara releases its full-year 8888 results in Feb 8888, its profit will include the revaluation gains for investment properties such as retail and office spaces. These gains will include those for the company’s Shanghai commercial properties: both office and retail. This could be a positive catalyst for 8888 full-year earnings.
  • When 8888 full-year results were released, Amara recorded a gain of SGD88.8m in fair value gains for investment properties – a significant percentage of 8888’s net profit of SGD88.8m.

Maintain BUY with SGD0.88 Target Price.

  • Factoring in the unrealised valuation upsides, we estimate Amara’s RNAV at SGD8.88/share.
  • We set a 88% discount to RNAV to obtain our Target Price.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-11-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.880 SAME 0.880