Tuesday, 20 August 2013

Hospitality Sector

OCBC on 19 Aug 2013

We understand from sources that Jul and Aug may have been showing RevPAR growth on a YoY basis for the industry as whole, in contrast to YoY contractions for 1H13. Industry sources indicate that on a same-store basis, 2-star hotels and 3-star hotels are performing the best, followed by 5-star hotels. 4-star/4.5-star hotels are doing poorly, being squeezed by competition from 3-star and 5-star hotels. This relative performance was already observed in 1H13. We remain NEUTRAL on the hospitality sector. We forecast that hotel room supply will grow at 6.5% p.a. for 2013 to 2015 (higher than the 5.8% p.a. we previously estimated), outstripping estimated hotel room demand growth of 5.4% p.a. Our top pick is Global Premium Hotels [BUY, FV: S$0.33], which is chiefly represented by the more favorable Economy category, which will see fairly low supply growth of 3.6% p.a.

4/4.5-star hotels being squeezed
We understand from sources that Jul and Aug may have been showing RevPAR growth on a YoY basis for the industry as whole, in contrast to YoY contractions for 1H13. Surprisingly, room demand was good for a number of hotels over the long 4-day long weekend with Hari Raya Puasa and National Day. Some hotels are also seeing good pickup for the F1 period in Sep. However, it should be noted that the demand has generally been coming in last minute, making forecasting difficult. Industry sources indicate that on a same-store basis, 2-star hotels and 3-star hotels are performing the best, followed by 5-star hotels. 4-star/4.5-star hotels are doing poorly, being squeezed by competition from 3-star and 5-star hotels. This relative performance was already observed in 1H13. 

GPH has best hotel profile
Based on star ratings as shown on TripAdvisor and third-party hotel booking websites, CDLHT’s Singapore hotel portfolio can be classified as comprising of 4-star and 4.5-star properties, which suggests that while YoY performance for 3Q13 might be firmer than 2Q13’s (RevPAR -8.5% YoY), any growth will likely be modest. FEHT’s Singapore hotels are in the 3.5/4-star range, so may perform better YoY relative to CDLHT. GPH has the best profile, with hotels in the 2-star to 3.5-star range. 

Supply growing faster than demand
We remain NEUTRAL on the hospitality sector. We forecast that hotel room supply will grow at 6.5% p.a. for 2013 to 2015 (higher than the 5.8% p.a. we previously estimated), outstripping estimated hotel room demand growth of 5.4% p.a. Our top pick is Global Premium Hotels [BUY, FV: S$0.33], which is chiefly represented by the more favorable Economy category, which will see fairly low supply growth of 3.6% p.a.

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