CFA Society Singapore
SINGAPORE (Jan 16): OCBC Investment Research is maintaining “overweight” on Singapore’s hospitality sector as it sees value in some of the hospitality REITs under its coverage at their current unit prices.
OUE Hospitality Trust (OUE HT), Far East Hospitality Trust (FEHT) and Ascott Residence Trust (ART) are OCBC’s top “buy” picks with fair value estimates of 79 cents, 67.5 cents and $1.18, respectively.
The reiteration of OCBC’s sector weightage follows mixed industry-wide revenue per available room (RevPAR) performance in Oct and Nov 2018, which indicate that mid-tier hotels no longer seem to be outperforming their upscale counterparts, in the research house’s view.
It also believes Singapore assets owned by REITs under its coverage may show more co-ordinated operational performance between the two tiers.
In a Wednesday report, analyst Deborah Ong notes how visitor arrival growth statistics were healthy for the most of 2018 despite faltering towards the end of the year, especially with a low y-o-y growth rate of 0.6% in Nov 2018 due to lower Chinese visitor arrivals.
Ong largely attributes the latter to recent signs of economic distress in China, but nonetheless says 2019’s outlook remains heavily dependent on rapid shifts in US-China trade tensions.
“Should there be no concrete resolution to the trade war by March, we see the possibility that a dampened consumer confidence may result in a fall in outbound traffic from China,” cautions the analyst.
Notwithstanding the impact of 2017’s significant surge in hotel room supply due to the opening of seven new hotels, Ong believes this year will continue to be a good one for the hospitality sector, given the dramatically-reduced pace of supply injection – with the exception of some hotels with new supply located in their vicinity, such as in Bugis or Orchard.
“We do believe that Singapore’s hospitality industry as a whole has been given ample time to absorb the supply injection [in 4Q17]. Furthermore, we have received feedback that many of these hotels have displayed room rate discipline [i.e. did not cut rates too aggressively], which reduces downward pressure on ADRs for other nearby hotels,” she notes.
Units in OUE HT, FEHT and ART last traded at 69 cents, 63 cents and $1.13 before the midday trading break.