Valuation
· Maintain BUY with a target price of S$0.34, pegged toour dividend discounted cashflow model (DDM). Currently, the stock is trading at 0.66x FY12 P/B with a dividend yield of 4.0%.
Financial Highlights
· Global Premium Hotel’s (GPH) 1Q13 net profit after tax fell 32.0% to S$4.3m from S$6.3m in 1Q12 largely due to higher interest cost from expanded bank borrowings. Finance costs doubled as expected, to S$1.3m as GPH’s debt grew from S$138m in 2011 to S$625m in 1Q13 during the restructuring exercise undertaken by the company for the IPO in 2Q12.
· Operationally, hotel room revenue declined by 1.1% to S$14.3m due to the lower average occupancy rate (AOR) of 89.6% as compared with 1Q12’s AOR of 91.7%. Revenue per available room remained relatively stable at S$91.4 in quarter. Administrative expenses for 1Q13 increased by S$0.7m (+13.6% yoy) over 1Q12, as the group recorded higher depreciation expenses due to an increase in fair value gain on leasehold land and hotel buildings.
· As at 31 Mar 13, the company had a net asset value of S$0.38 per share.
Our view
· The Singapore Tourism Board (STB) still expects the country’s tourism outlook to remain positive in the next 10 years, although it will grow at a slower rate than the last corresponding period. Tourism arrivals growth should moderate to 3-4% with receipts increasing 4-6% per year compared with the respective 10% and 6.6% compounded annual growth rate in 2002-2012.
· For 2013, STB estimates visitor arrivals to reach 14.8m-15.5m from 14.4m last year, driven by new attractions such as Marine Life Park, River Safari andNational Art Gallery.
· However, we do see some headwinds in the hospitality sector with an estimated increase of more than 4,000 rooms in the next 12 months, of which approximately 7% are in the economy segment. This would pressure GPH’s average room rates and occupancy ratios.
· The next earnings uplift will be in 2014 when GPH completes its 270-room mid-tier hotel at 165-167 Tyrwhitt Road.
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