SINGAPORE (May 16): RHB is maintaining its “buy” call on Amara Holdings with a target price of 88 cents.
This follows the group's announcement that 1Q18 earnings increased 32% to $2.1 million from $1.6 million in 1Q17 on higher revenue and forex gains.
Revenue for the quarter grew 13% to $22.6 million compared to restated 1Q17 revenue of $20 million a year ago, lifted by higher contributions from its Hotel Investment and Management segment.
Other income grew more than fourfold to $1.4 million from $0.4 million on the back of a $1.2 million foreign exchange gain.
See: Amara posts 32% 1Q earnings rise to $2.1 mil on higher revenue & forex gain
In a Tuesday report, analyst Leng Seng Choon expects the group’s 2H18 earnings to be stronger, despite 1Q18 earnings already accounting for 15% of his full-year net profit estimate.
The group’s management believes that its hotels in Singapore would benefit from an upswing in leisure and corporate travellers, as well as relatively muted new hotel room supply in 2018.
During the quarter, the group’s 343-room Amara Signature Shanghai was soft launched and contributed $1 million to 1Q18 revenue.
Whilst there could be some initial losses from the Shanghai hotel operations, management is hoping to replicate the strong initial performance of Amara Bangkok, which reported positive operating cash flows in its second year of operation.
“We have factored in significant revenue contributions from Amara Signature Shanghai in 2018. However, 2018’s turnover is projected to be lower than 2017, mainly due to expectations of sharply lower fair value gains for investment properties,” says Leng.
Adjacent to Amara Signature Shanghai is 100 AM Shanghai, which is expected to have a soft opening in 2H18. The property is a 10,500 sqm complex comprising a Grade A office tower and a retail mall, offering dining outlets and a cinema, as well as a co-working space by Kr Space.
In addition, the analyst believes that the stock is trading at a significant valuation surplus.
The group’s balance sheet currently only reflects the cost of the hotels and the analyst believes that there are several significant valuation upsides for Amara Singapore, Amara Sanctuary Resort Sentosa, and Amara Signature Shanghai.
“At current levels, the stock is trading at P/RNAV of 0.4 times. Our 88 cents TP is pegged to P/RNAV of 0.65 times – this suggests a 35% discount to its RNAV, which we believe is conservative given the mid-20s discount to RNAV for SGX-listed peers,” add Leng.
As at 10.55am, shares in Amara are trading at 52 cents or 0.75 time FY18 book with a dividend yield of 1.9%.
