SINGAPORE (Dec 1): OCBC Investment Research is maintaining a “neutral” rating on Singapore’s hospitality sector, given currently rich valuations.
For the four counters – Ascott Residence Trust (ART), Far East Hospitality Trust (FEHT), OUE Hospitality Trust (OUEHT) and CDL Hospitality Trust (CDLHT) – that the research house covers, 3Q17 y-o-y growth in hotel RevPAR ranged between –1.4% to 8.0%.
Meanwhile, Serviced Residences (SR) RevPAU – which is more dependent on corporate demand – fell 9.9% y-o-y for ART’s Singapore-based SR portfolios and 3.4% y-o-y for FEHT.
On the whole, 9M17 DPU growth ranged from –19.0% to 19.1% y-o-y while 3Q17 DPU ranged from –28.1% to 10.6%, with OUEHT posting the greatest gain for both periods while ART was affected by the time lag between its rights issue and Ascott Orchard Singapore acquisition.
In a Friday report, analyst Deborah Ong says, “Given the improving supply-demand dynamics, we are generally optimistic about RevPAR growth in 2018, especially the second half. From our channel checks, there finally seems to be a slight pick-up in corporate demand, with more requests for proposals and corporate enquiries for function rooms and activities recorded.”
The research house has picked OUEHT as its favourite counter, rating it at “hold” with a target price of 82 cents.
According to the analyst, OUEHT along with FEHT stand to benefit the most from an uptick in either operational prospects and/or sentiment locally.
“Notwithstanding this, OUEHT faces a drop off in CPCA income support next year, while we believe FEHT will continue to face stiff competition in the mid-tier hotel segment at least until 1Q18,” says Ong.
Going forward, OUEHT is expected to benefit from the expected recovery in the hospitality industry.
Despite the fall-off in income support from Crowne Plaza Changi Airport (CPCA) from 4Q17 onwards, Ong continues to anticipate higher traffic at CPCA after the opening of Changi Airport Terminal 4 in the coming two to four years.
Moreover, one potential catalyst for a rerating could be an announcement of any upcoming lifestyle or tourist attractions within the Greater Southern Waterfront – a 1,000ha piece of land that is three times that of Marina Bay to be redeveloped.
“With the considerable success of Marina Bay Sands and Gardens by the Bay, we believe the waterfront stretch could potentially be used to develop more than one medium- to large-scale lifestyle/tourist attractions,” says Ong.
Nonetheless, given the scant details regarding the development as well as the uncertain timeline, the analyst has decided not to incorporate any upside into the model parameters until more concrete information is available.
As at 3.15pm, units in OUEHT are trading at 82 cents.