Shangri-La Asia - OCBC Investment 2019-08-26: A Challenging Environment 


Shangri-La Asia - A Challenging Environment 

  • Hotel RevPar was down 3.7% y-o-y.
  • Hotel Operations remain challenging.
  • Lower Fair Value estimate of HK$13.90.

Hotel Operations was a drag

  • SHANGRI-LA ASIA (SGX:S07)’s 1HFY19 revenue grew 1.7% y-o-y, or US$19.5m to US$1.2b, driven by a net increase of US$65.9m in Property Development from the sale of residences in Shangri-La’s One Galle Face development in Colombo, Sri Lanka. The grown was partially offset by a decrease of US$52.7m from Hotel Operations on the back of a generally challenging hotel business environment due to geopolitical and local-specific events, as well as unfavourable exchange rate.
  • PATMI was down 24.7% y-o-y to US$115.1m, while EBITDA fell 0.2% y-o-y to US$300.9m in 1HFY19 or 47% of our initial full-year forecast.
  • An interim dividend of 8 HK cents per share was declared, same as the same period last year. See Shangri-La Asia's dividend history.

Fall in tourist arrivals in Hong Kong

  • Revenue from Hotel Properties fell 5.1% y-o-y or 1.6% y-o-y if the revenue was adjusted for foreign exchange impact, to US$1.0b in1HFY19. RevPAR decreased 3.5% y-o-y to USD110 on the back of lower occupancy (-1 pp to 66%) and lower room rate (-2.9% y-o-y to US$167).
  • For Hong Kong, Hotel Properties’ revenue fell 1.5% y-o-y, mainly attributable to the negative impact of the political events in Hong Kong, partially offset by the continued ramp up of Kerry Hotel. The occupancy was down 1 ppt to 82% while room rate grew 1% to US$290. RevPAR was US$237, down 0.4% y-o-y. Management cited concerns of a decline in tourist arrivals due to political events which may continue to weigh on hotel operations in the near-term.
  • For China, the hotel market was challenging due to uncertainties over U.S-China trade negotiations and also the weakening of RMB. Hotel revenue in China fell 8.4% or 2.9% y-o-y in RMB terms, to US$380.4m. RevPAR also decreased by 8% y-o-y to US$79.

Moderating our expectations

  • Looking ahead, we expect the headwinds we encountered in 1HFY19 to continue to linger into 2HFY19. Hotel business is likely to remain challenging but a more stable income from Investment Properties business could potentially smooth the volatility of earnings. Management remains focused on asset management opportunities to build a stronger foundation so as to capture new opportunities.
  • We revised our FY19 and FY20 EBITDA forecasts down by 4%/8% to factor in the fall in tourists arrivals in Hong Kong, slower RevPAR run-up in Hong Kong and China, and also the weaker RMB.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-08-26
SGX Stock Analyst Report BUY MAINTAIN BUY 16.160 SAME 16.160