The economy-tier segment of the Singapore hotel industry is seeing increasing levels of competition given that the hotel room supply for this category is set to grow at 7.2% p.a. over 2012-2014, faster than the other three hotel tiers. Among the economy-tier hotels, Fragrance hotels under Global Premium Hotels (GPH) should perform relatively well, given GPH’s operational experience and market share. We have a cautious outlook for the near-term performance of the Singapore hospitality sector as a whole in 1Q13, but remain optimistic for the longer term. We maintain our fair value of S$0.29 (using a 10% discount to RNAV) and BUY rating on GPH. GPH intends to distribute at least 80% of net profit after tax for FY12; we estimate an attractive FY12F dividend yield of 5.7%.
Subdued performance for hospitality in 1Q13
To recap, Global Premium Hotels (GPH) performed below our expectations in 3Q12. 3Q12 revenue increased by 8.1% YoY to S$14.9m. Gross profit margin declined 1.7 ppt versus 3Q11 to 86.6%. EBITDA margin fell 6.6 ppt to 59.8% (excluding one-off expenses of S$0.5m for 3Q12). We understand that the RevPAR performance for Fragrance hotels which did not open/reopen in 2011 was basically flat YoY for 3Q12. We have a cautious outlook for the near-term performance of the Singapore hospitality sector as a whole.
Economy hotels to see greater supply growth
By our estimates, economy-tier hotels will see the fastest growth in hotel room supply over 2012-2014 at 7.2% p.a. (versus 7.0% p.a. for Mid-tier, 3.4% p.a. for Upscale and 1.6% p.a. for Luxury). This could apply some pressure on existing economy hotels especially given that new hotels tend to provide discounts in the first few months after opening. However, as mentioned previously, according to hotel consultant PKF, tourist destinations generally start out attracting explorers who tend to have better financial means. As the destinations become well-visited, a wider spectrum of visitors will demand a diversified hotel supply, i.e. more budget hotels.
A market leader in the economy segment
Among economy hotels, GPH’s Fragrance hotels should perform relatively well, given GPH’s operational experience and market share of ~12.2% by retail value of accommodation in 2010, second only to Hotel 81 Management Pte Ltd (29.2%). We also note that 22 of the 23 hotels run by GPH are wholly owned by the group (including one Parc Sovereign Mid-tier hotel); 19 are on freehold sites, one is on a 999-year leasehold site and two are on 99-year leasehold sites. Given the largely freehold nature of the properties, we believe GPH can be a longer term property play.
Maintain BUY
We maintain our fair value of S$0.29 (using a 10% discount to RNAV) and BUY rating. GPH intends to distribute at least 80% of net profit after tax for FY12 and we estimate an attractive FY12F dividend yield of 5.7%.
To recap, Global Premium Hotels (GPH) performed below our expectations in 3Q12. 3Q12 revenue increased by 8.1% YoY to S$14.9m. Gross profit margin declined 1.7 ppt versus 3Q11 to 86.6%. EBITDA margin fell 6.6 ppt to 59.8% (excluding one-off expenses of S$0.5m for 3Q12). We understand that the RevPAR performance for Fragrance hotels which did not open/reopen in 2011 was basically flat YoY for 3Q12. We have a cautious outlook for the near-term performance of the Singapore hospitality sector as a whole.
Economy hotels to see greater supply growth
By our estimates, economy-tier hotels will see the fastest growth in hotel room supply over 2012-2014 at 7.2% p.a. (versus 7.0% p.a. for Mid-tier, 3.4% p.a. for Upscale and 1.6% p.a. for Luxury). This could apply some pressure on existing economy hotels especially given that new hotels tend to provide discounts in the first few months after opening. However, as mentioned previously, according to hotel consultant PKF, tourist destinations generally start out attracting explorers who tend to have better financial means. As the destinations become well-visited, a wider spectrum of visitors will demand a diversified hotel supply, i.e. more budget hotels.
A market leader in the economy segment
Among economy hotels, GPH’s Fragrance hotels should perform relatively well, given GPH’s operational experience and market share of ~12.2% by retail value of accommodation in 2010, second only to Hotel 81 Management Pte Ltd (29.2%). We also note that 22 of the 23 hotels run by GPH are wholly owned by the group (including one Parc Sovereign Mid-tier hotel); 19 are on freehold sites, one is on a 999-year leasehold site and two are on 99-year leasehold sites. Given the largely freehold nature of the properties, we believe GPH can be a longer term property play.
Maintain BUY
We maintain our fair value of S$0.29 (using a 10% discount to RNAV) and BUY rating. GPH intends to distribute at least 80% of net profit after tax for FY12 and we estimate an attractive FY12F dividend yield of 5.7%.
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