SINGAPORE (Oct 9): RHB Research is cutting its 2017 net profit forecast for Amara Holdings by 14% after a delay in the expected commencement of operations of Amara Signature Shanghai.
The opening of the Shanghai property, which comprises a 343-room hotel, retail centre and office building, has been pushed back to the fourth quarter of 2017. It had been expected to commence operations in 3Q17.
“Despite this, Amara remains attractive, as it trades at 0.39x P/RNAV,” says RHB analyst Leng Seng Choon.
Further, Leng notes that the group’s balance sheet reflects only the cost of the hotels. “There are several significant valuation upsides for Amara Singapore, Amara Sanctuary Resort Sentosa, and Amara Signature Shanghai,” he adds.
In addition, Leng says “recent news flow of potential buyers scouting to buy Singapore hotel properties is a positive for the sector.”
As such, RHB is keeping is “buy” call on Amara with an unchanged target price of 88 cents, representing an upside of around 66% from its current price.
Meanwhile, Leng opines that Amara’s Singapore properties are set to benefit from a sharp decline in new hotel room supply in 2018 amid expectations of higher visitor arrivals.
According to media reports, less than 300 new hotel rooms are in the pipeline to be added in 2018, compared to more than 3,000 new rooms added this year.
This bodes well for Amara Singapore and Amara Sanctuary, which saw average occupancy rates for the first eight months of 2017 climb to 89% and 73%, respectively – from 88% and 60% in the corresponding period a year ago.
As at 11.24, shares in Amara are trading flat at 53 cents. This implies an estimated P/E ratio of 29.8x and a dividend yield of 1.9% for 2017.
