Singapore Travel and Hospitality - OCBC Investment 2020-03-27: Enhanced Supportive Measures

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SINGAPORE AIRLINES LTD (SGX:C6L) SATS LTD. (SGX:S58) ASCOTT RESIDENCE TRUST (SGX:HMN) CDL HOSPITALITY TRUSTS (SGX:J85) FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Singapore Travel and Hospitality - Enhanced Supportive Measures

• Additional S$48.4b in second stimulus package.
• Together, total budget of S$55b was set aside to combat COVID-19.
• Package aims to provide enhanced support to workers and business.

Aviation Sector

• On top of the S$112m package announced previously, additional supportive measures were introduced given the escalation of COVID-19 which has spread rapidly across the globe. The measures will focus on three areas:
  1. Enhanced jobs support scheme - Businesses in the aviation sector such as airlines, ground handling companies and airport operator will receive grants which will offset 75% of the gross monthly wages (cap at monthly wage of S$4,600) of their local workers.
  2. Enhanced aviation support package - A S$350m package was announced to provide enhanced cost relief measures such as rebates on landing and parking charges, and rental reliefs for airlines, ground handling companies and cargo agents.
  3. Defer payment of fees - Civil Aviation Authority of Singapore (CAAS) will allow the deferment of certain fee payment partially or fully for one year to alleviate the cash flow and operating cost pressures.
• The additional relief measures are likely to benefit Singapore Airlines (SGX:C6L), SATS (SGX:S58) and SIA Engineering (SGX:S59) further to cover their short-term revenue loss. Moreover, Singapore Airlines [HOLD; FV: S$6.60] announced last evening a proposed renounceable rights issue with the support of Temasek, its largest shareholder. Shareholders will be offered S$5.3b in new equity and up to an additional $9.7b via mandatory convertible bonds (MCB). The proceeds will be used to support Singapore Airlines’s liquidity needs and long-term growth. The rights issuance will be subject to shareholders’ approval at EGM and Temasek will vote in favour of the issuance and to subscribe to its pro-rata entitlement as well as to subscribe to any unsubscribed rights shares or remaining rights in the MCBs.
• We see the support from Temasek as timely to Singapore Airlines. To date, Singapore Airlines has cut 96% of its capacity due to widen border controls. Singapore Airlines has been proactively looking at ways to mitigate cost pressures and is in discussions with banks for funding. It recently announced a further cut in salary from 5-15% to 10-30% for its senior management and board members, and compulsory no-paid leave every month for pilots, executives and associates to control costs.

Hospitality Sector

• As one of the hardest-hit sector, the government announced additional measures on top of the one year property tax rebate introduced previously to help businesses in hospitality sector tide over this difficult period. The following are the details:
  1. Enhance Broad-Based Support for Tourism Sector - Business in tourism sector such as licensed hotels, travel agencies will receive grants which will offset 75% of the gross monthly wages (cap at monthly wage of S$4,600) of their local workers. A tax rebate of 100% will be granted to qualifying commercial properties, including hotels, serviced apartments, prescribed MICE venues, and international cruise and regional ferry terminals. This was revised up from the 15-30% property tax rebated announced earlier during the Budget 2020.
  2. Enhance Training Industry Professionals in Tourism Grant - Singapore Tourism Board (STB) will maximise its support level to 90% for course fees and trainer fees for tourism-related courses.
  3. Enhance Other Tourism Grants - The measure aims to maximise grants for qualifying program or events costs.
• As highlighted in our last sector report, we believe Far East Hospitality Trust (SGX:Q5T) [BUY; FV: S$0.52] and CDL Hospitality Trusts (SGX:J85) [BUY; FV: S$1.09] are likely to enjoy the most benefits given that Far East Hospitality Trust is a pure play on Singapore hospitality and CDL Hospitality Trusts’s high exposure to Singapore (62% by FY19 NPI). However, Ascott Residence Trust (SGX:HMN) [BUY; FV: S$1.11] remains our top pick as we like Ascott Residence Trust’s defensive, geographically diversified portfolio and its focus on corporate, long-stay serviced residences.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-03-27

SGX Stock Analyst Report HOLD MAINTAIN HOLD 6.600 SAME 6.600

BUY MAINTAIN HOLD 4.730 SAME 4.730

BUY MAINTAIN BUY 1.110 SAME 1.110

BUY MAINTAIN HOLD 1.090 SAME 1.090

BUY MAINTAIN HOLD 0.520 SAME 0.520