SINGAPORE (July 12): RHB Research expects Singapore’s hospitality sector to finally turn around in 2018, on the back of easing hotel supply, continued visitor arrival growth, and a pick-up in corporate activities.
“Singapore Hotel RevPAR (revenue per available room) has fallen by 12% from its peak and is now back to 2008 levels,” says RHB analyst Vijay Natarajan in a Wednesday report. “With supply pressures easing by end-2017, hoteliers are expected to see some respite.”
In addition, Natarajan estimates that the opening of Changi Airport Terminal 4 in the third quarter of 2017 could increase Singapore’s visitor arrivals by around 5%. Year-to-date, visitor arrival has grown 4.4% y-o-y, after climbing 7.7% y-o-y in 2016.
“Overall, we expect visitor arrivals to grow at a healthy 5-7% in 2018, which bodes well for the hospitality sector demand,” says Natarajan.
Signs of improvement in corporate sector multinational corporation (MNC) profits in tandem with economic growth is also expected to drive demand for the hospitality sector, according to Natarajan.
“Year-to-date, Hospitality REITs are up 13%, outperforming S-REIT’s 11.8% and FTSE Straits Times Index’s (STI) 11.7%,” says Natarajan. “Despite the outperformance, Hospitality REITs on average offer forward dividend yields of 6.3% and trades at a relatively cheap 0.9x P/BV.”
RHB’s top picks among the hospitality REITs are CDL Hospitality Trusts (CDLHT) and OUE Hospitality Trust (OUEHT).
Natarajan says CDLHT is the most liquid proxy to the recovery in visitor arrivals, while OUEHT will be a key beneficiary of the opening of the new airport terminal.
RHB has “buy” calls on both CDLHT and OUEHT, with target prices of $1.70 and 78 cents, respectively.
As at 2.51pm, units of CDLHT are trading half a cent higher at $1.57 and units of OUEHT are trading 1 cent lower at 75 cents.
