SINGAPORE (Feb 14): Singapore’s tourism sector is expected to take a significant hit this year due to the 2019 novel coronavirus (Covid-19) outbreak. As of Feb 13, there have been 58 people infected with the virus. The Republic also has the highest number of confirmed cases outside of China.
With the virus already claiming more than 1,000 lives worldwide, it is no surprise that tourism numbers here have taken a dip. Things took a turn for the worse on Feb 7: Singapore raised its Disease Outbreak Response System Condition (Dorscon) to ‘orange’, which is just one rung below the highest alert – ‘red’.
Travel advisories were issued by Kuwait and Qatar for Singapore, following the raising of Singapore’s Dorscon level. On Feb 9, Qatar advised all its citizens to avoid unnecessary travels to the island, urging them to “wait until the conditions related to the coronavirus calms [in Singapore], except for the most urgent need”. Kuwait also issued a similar advisory the day before, urging its citizens in Singapore to leave immediately. Since then, Israel, Malaysia, UK and India have issued similar advisories.
In response, Singapore Tourism Board (STB) chief executive Keith Tan says the advisories against the city state are unnecessary. “We’re very confident in the measures that our government has taken to contain the outbreak of the virus here in Singapore,” he says at the tourism promotion agency’s annual year-inreview briefing on Feb 11.
Still, STB believes the coronavirus situation here will possibly be worse than the 2003 SARS outbreak, which infected about 238 people and killed 33. “We are in uncharted territory here, but we estimate that visitor arrivals could decline by about 25% to 30% in 2020,” he concedes.
And at this point, the Republic is expected to lose an average of about 18,000 to 20,000 international visitor arrivals daily, and this figure may very well increase. This is because most of the “lost” visitor arrivals are Chinese. On Jan 31, Singapore announced it will not allow entry and transit for travellers who have been in China within the past 14 days. Many leisure and business travellers from other countries are either deferring, or cancelling their travel plans to Singapore.
All these cancellations point to one inevitability, Tan concludes. “We must prepare for a difficult year ahead”.
Between 2016 and 2019, despite the global headwinds, Singapore enjoyed consecutive annual growth in both visitor arrivals and tourism receipts. In 2019, visitor arrivals increased by 3.3% to reach a record 19.1 million visitors. They spent a total of $27.1 billion here, a marginal growth of 0.5% y-o-y.
Mainland Chinese tourists remain the largest proportion of visitors here: More than 3.6 million Chinese came to the city state in 2019, a 6% increase from the previous year. These Chinese tourists are also the largest spenders, spending some $3.2 billion between Jan and Sept 2019.
Staying indoors
Naturally, hotels here will see a significant impact, says DBS Group Research. According to STB’s data, visitor spending on accommodation has fallen by 7% y-o-y in 2019, as more visitors are opting for economy-tier hotels, hostels as well as staying with friends or relatives. There has also been 2.1% growth in those who visit Singapore for a day-trip, which STB says could also have contributed to 2019’s decline in accommodation receipts.
With competition within the hospitality sector already high, hotels are expected to see a much harder time amid a virus outbreak which is keeping cautious visitors away.
In a Feb 3 report, DBS anticipates a nearterm knee-jerk negative reaction amongst the hospitality REITs on the back of heightened near-term earnings risk. DBS analysis predicts at least a near-term 4% to 8% drop in occupancy, assuming a three to six-month travel ban on Chinese tourists.
“We believe that a further risk of a snowball effect to other travellers (for business or leisure to Singapore) who may delay their travel is high, compounded by WHO’s health emergency warning,” says DBS analyst Derek Tan in the report.
As it is, several large exhibitions, concerts and events scheduled to happen here have either been cancelled or delayed. For example, the Singapore Airshow – which takes place once every two years – was held this past week. However, dozens of exhibitors pulled out while its key aviation conference – that was supposed to involve 300 government officials, civil aviation authorities, airport operators and airline executives – was cancelled. On Feb 12, Run For Hope 2020, the annual marathon by Four Seasons Hotel Singapore and the National Cancer Centre Singapore (NCCS) to raise awareness and raise funds for cancer research, was postponed to August.
On the back of this, DBS has downgraded Far East Hospitality Trust (FEHT) to “hold” with a target price of 69 cents, as the fall in tourist traffic is likely to result in higher competition and affect the trust’s distribution per stapled security (DPS) performance in 2020.
Since the close of Jan 24, before the Lunar New Year break, units in FEHT have shed some 7.5% or 5.5 cents to close at 68 cents on Feb 13. In its latest 3QFY2019 results ended Sept 31, 2019, FEHT recorded a 1.0% fall in DPS to 1.04 cents from 1.05 cent in 3QFY2018, but on a 9MFY2019 basis, DPS fell 4.7% to 2.86 cents from 3.00 cents last year.
Even with all uncertainties about the novel coronavirus in the air, analysts seem to be positive on Ascott Residence Trust (ART), largely because of its diversified portfolio literally across the world. DBS, Phillip Securities and UOB Kay Hian are all recommending a “buy” on the counter.
At ART’s results briefing on Jan 30, Beh Siew Kim – who is the chief executive of the REIT’s manager – said that a short-term impact on the trust’s portfolio is expected as global travelling has reduced in light of the coronavirus situation. The trust is already dealing with booking cancellations and has seen a fall in forward bookings since the start of this year.
“The extent of the impact from the novel coronavirus situation is uncertain as it is still evolving. Our geographically diversified portfolio with no concentration of earnings from any single market, as well as mix of stable and growth income streams, are expected to mitigate the [coronavirus] impact. Post-combination with Ascendas Hospitality Trust, ART’s proportion of stable income is also expected to increase with the addition of more properties on master leases,” Beh adds.
As of Dec 31, 2019, ART’s international portfolio comprises 87 properties with more than 16,000 units in 39 cities across 15 countries in Asia Pacific, Europe and the US. In its latest FY2019 results, ended Dec 31, 2019, ART recorded DPS of 7.61 cents, 6% higher than FY2018, as unitholders’ distribution increased by 7% y-o-y to $165.6 million.
Roller coaster events
Speaking at STB’s year-in-review on Feb 11, Sentosa Development Corporation’s chief executive Quek Swee Kuan says: “Sentosa is a microcosm of Singapore’s tourism and similarly [and] business has been affected since early February… by about 20% to 30%, in terms of visitorship and sales.”
To help Singapore’s tourism industry during this difficult time, Quek said Singaporeans and residents must “play an important part in recovery”. “Locals in Singapore ought to be getting out of their houses and enjoy hospitality, leisure and lifestyle services available in Singapore,” he continues.
However, the same evening after Quek spoke about Sentosa taking precautions to ensure the safety of its guests and staff, a 35-year old staff at the Resorts World Sentosa (RWS) casino was confirmed to have contracted the coronavirus.
RWS is owned by Genting Singapore (GENS), a principal indirect subsidiary of Malaysian-listed Genting Berhad and part of the Genting Group.
On Feb 12, GENS released its 4QFY2019 results, ended Dec 31, 2019, and reported a 4% y-o-y increase in 4Q earnings to $155.9 million, even though revenue dropped by 9% to $607.2 million over the same period. The revenue decline was because of lower contribution from the group’s casino business. GENS plans to pay a final cash dividend of 2.5 cents per share, higher than the 2.0 cents dividend paid last year.
In its results report, GENS notes that the coronavirus outbreak has created massive disruption to the travel and tourism industries, and hence it is generally pessimistic about the outlook for the first half of 2020. “We will be embarking on a stronger productivity drive and utilise this period to refresh and develop our offerings,” said GENS.
According to UOB Kay Hian’s head of research Adrian Loh, the gaming sector is one that would be negatively affected by the Covid-19 outbreak. Nonetheless, UOB Kay Hian has a “buy” recommendation on GENS with a lowered target price of 95 cents from $1.11 previously, as it believes that the group can achieve a speedy recovery in 2H2020 and the downside is supported by dividends.
Hazy outlook
Although the confirmed cases of coronavirus victims are still increasing, so are those who have recovered. As of Feb 12, 15 patients have already recovered and discharged from the hospital. The Singapore government has also reiterated that it has things under control.
UOB Kay Hian’s Loh says, “Our base-case view is that the Covid-19 issue will be largely contained by mid-2020 given the proactive measures taken by governments in Asia to contain the spread of the virus. In our view, governments are better prepared and more willing to take action in the current situation compared to SARS in 2003, which was the first of its kind and thus caught many unawares. The Singapore tourism industry will take time to bounce back and things should stabilise in 2HFY2020.”
Meanwhile, ING Bank economist Prakash Sakpal has lowered its forecast on Singapore’s GDP growth in 2020 to 1.0% from 1.6% earlier. “The downgrade reflects the impact of the ongoing spread of the coronavirus on the tourism sector as well as the broader economy,” he says. “Still, the risk remains on the downside and further forecast downgrades cannot be ruled out depending on how the disease evolves and the length of time it lingers.”
Additionally, STB is forming a Tourism Recovery Action Task Force (TRAC) to map out the recovery strategies and plans for tourism in Singapore. It will comprise tourism leaders from both the public and private sectors, to leverage the strengths of both sectors and to coordinate recovery efforts. According to the tourism agency, the task force will be responsible for identifying opportunities arising from the coronavirus crisis, driving and implementing measures to instil confidence in local tourism establishments, as well as co-creating and initiating recovery plans.
“With the support of the industry and through our joint task force, we will continue to build our capabilities, transform our tourism businesses, and rebound strongly from the novel coronavirus,” says Tan.
