Playtime is over
04 Sep 2008, DBS
Sector Outlook: Neutral. We downgrade the Singapore hospitality sector to Neutral (from Positive). After a strong
showing in 1H08, tourist arrivals data had been weakening in June and July amid worries of a weak US economy and high regional inflation. Moving forward, we expect modest growth as tourists and companies rethink travel plans.
Jun- Jul08 tourism data showed some signs of weakening. Tourist arrivals into Singapore in June and July showed declines of c.4% YoY. While hotel room rates and RevPAR were still higher compared to a year ago, the growth momentum is declining.
Hoteliers’ earnings could have peaked. We believe hoteliers’ earnings could have peaked in 1H08 on the back of strong growth in room rates and stable occupancies. Moving into 2H08, we expect lower earnings as hoteliers could be forced to moderate room rates due to slowing demand.
Medium term outlook remains positive. The medium term outlook for the sector remains hinged on the two Integrated Resorts being completed on schedule in late 2009-2010 and the marina cruise terminal in 2010, which will broaden Singapore’s tourist offerings. Events like Formula One and the Youth Olympics in 2010 will also provide Singapore with integral marketing tools to sell the nation to a worldwide viewing audience.
Stock selection. With the sector facing headwinds in the near term, we remain cautious of stock recommendations, and look for lower earnings risks and visibility as attributes. Our pick for the sector is ART, in which we see value emerging at current levels given its steep discount to its RNAV. Also, its portfolio lease expiry of 8 months will limit potential downside in spot rents. We downgrade CDL HT to Hold, as we see potential earnings risk in 2009. In addition, we ascribe a Fully Valued call for Amara Holdings, which could see earnings at risk from the slowing hotel and property segments.
Ascott Residence Trust : Pan-Asian service residence real estate investment trust
CDL Hospitality Trusts : CDL REIT is a stapled security consisting of hospitality trust with portfolio of hotel assets in Singapore and a business trust
Amara Holdings : Operates hotel and restaurants, provides food and beverage catering services as well as develops and invests in properties.
UpComing Events
(i) Hosting of Formula One. We believe this will bring extrinsic benefits to the local tourism sector in the medium term, when it is broadcasted worldwide during race week. 40,000 tourists are expected to visit Singapore for this event.
(ii) Integrated Resorts in late 2009/2010. The first of Singapore’s two Integrated Resorts, The Marina Bay Sands, is expected to open its doors in late 2009 or early 2010. This is expected to attract an influx of tourists and MICE travelers into Singapore. The completion of Genting’s Resorts World in 2010/2011 will further enhance Singapore’s offering to visitors.
(iii)â€Cruise Hub of Asiaâ€. The completion of the new Marina International Cruise Terminal will enable Singapore to capitalize
on Asia’s growing cruise industry. STB is targeting 1.5m cruise passenger throughput by 2015.
(iv) Youth Olympics in 2010. The hosting of the Youth Olympics will enable Singapore to market itself to the world, and to
attract more tourists to the country.