SINGAPORE (March 16): OCBC is maintaining its “neutral” rating on the hospitality sector, advising investors to buy into the sector on dips.

The rating comes on the back of challenging operational outlook for FY17 with prospect of revenue stabilisation FY18.

In FY16, industrywide average occupancy rates (AOR), average room rates (ARR) and revenue per available room (RevPAR) fell 0.9 ppt, 3.6% and 4.6% y-o-y respectively, according to the Singapore Tourism Board.

This compares to the 5.3% decline in RevPAR for the whole of 2015.

Looking at FY16 RevPAR trends by segment, the luxury segment looks most resilient with its 1.3% drop while economy-tier hotels performed poorest with a 5.4% drop.

Last year also saw a 4.3% increase in hotel room supply, 2.2% increase in visitor days and 2.0% rise in Singapore GDP though.

Looking ahead, OCBC expects leisure demand to show mild to no growth, with STB forecasting a 0% to 2% increase in tourist arrivals and a 1% to 4% increase in tourism receipts.

Corporate demand is also expected to remain soft as MNCs adopt a wait-and-see approach when it comes to long-term expat hiring.

For FY17, with hotel rooms expected to grow 5.9% and tepid economic growth outlook, RevPARs are expected to continue their decline, especially for hotels that rely on corporate demand.

In addition, with FY17 being an odd-numbered year, OCBC expects the MICE events calendar to be less packed for corporates.

However, RevPARs are expected to improve in FY18 given better supply-demand dynamics.

“Within the hospitality sub-sector in the REITs space, our top pick is OUE Hospitality Trust with 75 cents fair value,” says OCBC, “as we expect it to be buffered by inorganic contributions from its recent acquisition.”

Units of OUE-HT are trading at 68 cents.