CFA Society Singapore
SINGAPORE (March 28): OCBC Investment Research is maintaining its “neutral” call on Singapore’s hospitality sector with OUE Hospitality Trust (OUE HT) as its top and only “buy” pick in the Singapore REITs space at a fair value of 75 cents.
CDL Hospitality Trusts (CD REIT), Far East Hospitality Trust (FEHT) and Ascott REIT (ART) have been rated “hold” at fair value estimates of $1.46, 60 cents and $1.105 respectively.
In a Tuesday report, lead analyst Deborah Ong notes that Jan 2017’s total tourist arrivals to Singapore would have decreased 1.5% y-o-y if not for double-digit growth in Chinese arrivals, which jumped 38.2% as Indonesian arrivals increased 1.9%.
While overall revenue per available room (RevPAR) grew 2.7% y-o-y in January on a 3% increase in average room rates (ARR), Ong points out that this was attributable to a substantial 14.5% increase from the luxury segment according to the Singapore Tourism Board’s (STB) hotel tiers.
In comparison, Jan RevPAR for the upscale, mid-tier and economy segments declined by 1%, 10.8% and 8.9% respectively.
“Given that the hospitality REITs under our coverage own hotels mainly in the Mid-tier to Upscale tiers, the Jan data points support our 2017 projection of high single-digit to low double-digit RevPAR declines for the REITs,” comments Ong.
The analyst also expects China’s RMB to weaken by about 1.6% against the SGD this year, but says she foresees the impact of currency movements on tourist arrivals to only be more discernible for mature markets, such as Indonesia and Malaysia.
OCBC therefore recommends that investors buy into the hospitality sector on dips given Singapore’s challenging operational outlook for the sector this year – coupled with the prospect of RevPAR/Revenue per available room (RevPAU) stabilisation next year on the International Monetary Fund’s (IMF’s) forecast of 3.4% global GDP growth for 2017, and 3.6% in 2018.
“Nonetheless, we note that the forecast is based on the assumption of near-term fiscal stimulus in the US and corresponding global spillovers; should this stimulus fail to realise as Trump faces difficulties in Congress, there may be downside risks to business sentiment and global corporate spending,” she cautions.
As at 3.07pm, units of OUE HT are trading 0.7% lower at 68 cents. CD REIT, FEHT and ART are trading at $1.40, 59 cents and $1.08 respectively.