Global Premium Hotels

UOBKayhian on 8 Aug 2012

Valuation
· Global Premium Hotels (GPH) is currently trading at a 20% discount to its NAV/share of 30.7 cents and 6.0x 2011 PE. As it intends to pay out at least 80% of its net profit as dividends, management guided that the yield including the 0.2 cents payout this quarter could be as high as 6-7%.
· GPH’s profitability is largely dependent on the Singapore tourism sector, ie higher hotel room bookings. According to STB, visitor arrivals in 2012 are expected to increase to 13.5-14.5m in 2012 (2011: 13.2m) on the back of new attractions including Gardens by the Bay, River Safari, and Marine Life Park.
Financial highlights
· GPH reported 1H12 net profit of S$10.0m (-7.1% yoy) as higher financing costs offset higher revenue and gross profit. Revenue rose 19.6% yoy to S$30.1m as the group started operations in Parc Sovereign, Fragrance Hotel-Elegance and Fragrance Hotel-Riverside. Parc Sovereign and Fragrance Hotel-Riverside contributed S$1.8m and S$2.4m to the increase in revenue respectively.
· Average occupancy rate surged 10.5ppt to 90.7% in 1H12 with revenue per available room (RevPAR) increasing 9.9% yoy to S$92.3 on higher demand for the group’s hotels. However, average room rate fell marginally by 2.8% to S$101.8 as the group received less walk-in customers than on-line bookings and corporate partners. In general, walk-ins are charged 10-20% higher than advanced bookings.
· Finance cost jumped 64.5% yoy to S$2.4m as the group drew down S$343.5m in term loans to partially repay Fragrance Group for the hotel properties during the restructuring exercise. Interest rates are expected to stay at about 2-3% p.a.
· To expand its hotel chain, GPH intends to develop a hotel by acquiring Fragrance Heritage Pte Ltd (FHPL) for S$25.1m with a further estimated development cost of S$30.0m. FHPL owns a site at 165/167 Tyrwhitt Road and a new mid-tier hotel, if approved, will boost GPH’s existing hotel portfolio by another 250-270 rooms, or 14.4-15.5%. GPH also plans to spend S$3m to renovate Fragrance Hotel-Ruby in 3Q12 which will be closed till completion by 4Q12.