Global Premium Hotels

OCBC on 24 Sept 2012

Global Premium Hotels (GPH) develops, owns and operates Economy-tier and Mid-tier hotels, and is the second largest operator of Economy-tier hotels in Singapore. GPH currently operates 23 hotels in Singapore with a total of 1,738 rooms under the well-known "Fragrance" brand (Economy-tier - 22 hotels) and the "Parc Sovereign" brand (Mid-tier - 1 hotel). Out of the 23 hotels, 22 are wholly owned by the group, and 19 of them are on freehold land. From 2006 to 2011, GPH grew its portfolio of rooms by an impressive CAGR of 10.9% p.a. from 1,034 rooms to 1,738 rooms. GPH will continue its expansion with the development of a ~260-room Parc Sovereign hotel at the Tyrwhitt Road site which it has recently acquired from its parent, Fragrance Group. The hotel will expand the total room count under GPH's management by ~15% and based on third party valuers' and management's estimates, could potentially result in a S$42m accretion. We initiate with a BUY and a fair value of S$0.29.

Second largest operator of Economy-tier hotels in Singapore
Global Premium Hotels (GPH) develops, owns and operates Economy-tier and Mid-tier hotels, and is the second largest operator of Economy-tier hotels in Singapore. GPH currently operates 23 hotels in Singapore with a total of 1,738 rooms under the well-known "Fragrance" brand (Economy-tier - 22 hotels) and the "Parc Sovereign" brand (Mid-tier - 1 hotel). Out of the 23 hotels, 22 are wholly owned by the group, and 19 of them are on freehold land.

Positive outlook for the Singapore hotel sector
The Singapore Tourism Board projects tourism arrivals to increase at CAGR of 6.6% p.a. till 2015. Based on our estimates, overall hotel room demand will grow at 6.4% p.a. from 2012 to 2014, and will be underserved by an expected hotel supply CAGR of 4.8% p.a. over the period. In particular, Economy and Mid-tier hotel room supplies are estimated to expand at 7.2% p.a. and 7.0% p.a. respectively for 2012-2014, partly reflecting the continued attractive growth in budget tourism, given that much of the visitor arrival increase in recent years has come from developing countries Indonesia, China and India.

Strong track record of market-beating growth
From 2006 to 2011, GPH grew its portfolio of rooms by a CAGR of 10.9% p.a. from 1,034 rooms to 1,738 rooms. This is significantly stronger than the overall sector CAGR of 6.6% over the same period, based on Euromonitor International’s figures.

Initiate with BUY
GPH will continue its expansion with the development of a ~260-room Parc Sovereign hotel at the Tyrwhitt Road site which it has recently acquired from its parent, Fragrance Group. This hotel will expand the total room count under GPH's management by ~15% and based on third party valuers' and management's estimates, could potentially result in a S$42m accretion. We initiate with a BUY and an RNAV-based fair value of S$0.29.