SINGAPORE (Nov 2): Analysts believe there is still room for OUE Hospitality Trust (OUE HT) to rally, on the back of an anticipated recovery in the Singapore hospitality market.
“We believe the rally is not over,” says DBS Group Research’s lead analyst Mervin Song in a report on Thursday. “Investor interest in OUE HT should continue to increase as we approach a recovery in the Singapore hospitality market in 2018. This should drive OUE HT’s share price higher.”
DBS is reiterating its “buy” call on OUE HT and raising its target price to 85 cents, from 80 cents previously.
This comes after the manager of OUE HT on Wednesday posted distribution per stapled security (DPS) of 1.36 cents for the 3Q ended September, up 10.6% from 1.23 cents a year ago.
Gross revenue grew 5.4% to $34.0 million in 3Q17, led by a 7.1% increase in revenue from its hospitality segment to $25.4 million.
See: OUE Hospitality Trust posts 10.6% jump in 3Q DPS to 1.36 cents
Song notes that the increase in distribution was largely due to a full draw down of the remaining $1.6 million worth of income support for Crowne Plaza Changi Airport (CPCA). The research house had expected OUE HT to smoothen out the draw down up to the end of FY18.
“Excluding the income support, underlying 3Q17 DPU was still strong, up 8% y-o-y to close to 1.28 cents,” he says.
Likewise, CIMB Research’s lead analyst Yeo Zhi Bin brushes off the potential effect of an absence of income support.
“Notwithstanding supply pressures in 2H17-1H18, we think Mandarin Oriental Singapore (MOS) has bottomed and would achieve close to 5% revenue per available room (RevPAR) growth in FY18F,” Yeo says in a Wednesday report. “This, and higher occupancy at CPCA – projected at 85% – would offset the loss of income support.”
Yeo highlights that OUE HT saw an acceleration of RevPAR improvement. 3Q17 RevPAR improved 8% y-o-y to $242, underpinned by higher average daily rates (ADR) and occupancy.
“The star was MOS, which demonstrated its quality by achieving its second consecutive quarter of improvement in RevPAR, this time to the tune of +8% y-o-y,” says Yeo.
Meanwhile, he adds that the launch of Changi Airport Terminal 4 and opening of Project Jewel in early 2019 could provide “upside surprise” for CPCA.
CIMB is keeping its “add” rating on OUE HT with a higher target price of 84 cents, up from 82 cents previously.
Over at OCBC Investment Research, however, lead analyst Deborah Ong notes that OUE HT has delivered 27.0% in total returns since the research house upgraded the stock to a “buy” exactly a year ago.
With OUE HT rallying to just 1 cent away from OCBC’s unchanged fair value estimate of 82 cents, Ong is downgrading the stock to “hold”.
“Going forward, we expect OUE HT to benefit from the expected recovery in the hospitality industry, though we do note the fall-off in income support from CPCA from 4Q17 onwards,” Ong says.
“Looking ahead to the next two to four years, we continue to anticipate increased traffic at CPCA after the recent opening of Terminal 4,” she adds.
As at 12.49pm, units of OUE HT are trading flat at 81 cents. According to DBS forecasts, this implies an estimated price-to-earnings ratio of 18.7 times and a distribution yield of 6.3% in FY17.
