Bird's eye view of Marina Bay Sands on cover of BNP Paribas Jul 2009 report.

 PROPERTY DEVELOPERS, hotel operators, interior design contractors as well as consumer and aviation businesses will be boosted when integrated resorts open, according to BNP in its recent report.

The report follows hot on the heels of UOB Kay Hian's in early June, and shares similar views on who the beneficiaries of the IR opening would be. (Link to UOB KH's report is provided at the bottom of this page). 

When Marina Bay Sands and Resorts World at Sentosa officially open in the first quarter of next year, the tourist influx will spell good news for hotel operators such as CDL Hospitality Trust, Hotel Properties, Pan Pacific and Fragrance, according to BNP analyst Ng Wee Siang.

Listed hoteliers with meaningful presence in Singapore

1. Upscale hotel rooms – Hotel Properties and Pan Pacific Hotels
2. Mid-tier hotel rooms – CDL Hospitality Trust
3. Economy hotel rooms – Fragrance Group

Fragrance Group

The BNP analyst singled out Fragrance as the one hotel operator to reap the most benefit from the opening of the two integrated resorts.

The reason is Fragrance’s niche in rooms for budget travelers does not face competition from hotels in Marina Bay Sands and Resorts World at Sentosa.

Its budget accommodation was described as “Fragrance’s unique business model of catering to a minimum of two-hourly accommodation puts it in an enviable position to better compete with large hotels that do not have such flexibility.”

A Fragrance hotel at Lavender with its signature no-frills facade.
Enviable position?

Known euphemistically as "transit stay” in Singapore, the hourly rates are primarily intended for people having sexual liaisons.

In other cities such as the Filipino capital of Manila, hotels are banned from offering such short-term accommodation in a bid to deter social decay. 
Fragrance generated net profits of S$55.6 million in 2008 on fat net margins of 25.8%.  Hotel operations contributed 29% to pre-tax profits while property development contributed the remaining 79%.

Its historic PE of 6.8X (based on Mon’s close price of 43.5 cents) is inexpensive compared to its historical mean PE of 8.6X.

There is currently no analyst coverage (BNP does not have a rating) on the boutique property developer-cum-budget hotel operator.

Sources: Statistics and Census Service Macao SAR Government; BNP Paribas
Impending property boom?

Fund managers under mandate (whether corporate or personal) to avoid vice-related businesses (which casinos in other parts of the world are known to spawn) may wish to look at Singapore’s high-end property market instead.

The BNP analyst pointed to multi-year property market booms in Macau, Sydney and Melbourne after gaming industries in the 3 cities were liberalized.

Before one gets too excited, however, note the factors that may dampen the next property market euphoria:

Firstly, the Singapore government is likely to curb any wild upswings in prices of public housing and mass market private residences that can make Singapore too expensive a place to live in.

Secondly, the past few years of property boom in Singapore have led to a large new-home supply, which is greater than the potential increase in expatriate workers at the integrated resorts.

Sources: Australian Bureau of Statistics; BNP Paribas
Thirdly, job creation from the new integrated resorts will be largely for rank and file workers, meaning that casino workers may even be housed in Johor should the cost of local housing become prohibitive.

Finally, sharp increases in property prices are unlikely since private residential home prices have already risen by some 15% from its recent low in March.

That leaves us with high-end or luxury residential properties, such as those built by developers like SC Global or Wheelock Properties, as the best bet.  Wealthy tourists who gamble in casinos as a lifestyle may be attracted to the prospects of acquiring luxury homes in Singapore.

Finally, retailers may also benefit, said the analyst (albeit to a lesser extent).  These include consumer companies like Breadtalk and FJ Benjamin.

Kingsmen Creatives

Another key beneficiary of the integrated resorts highlighted by the analyst was Kingsmen Creatives.

The designer and producer of interior décor is niche in exhibitions, retail space and offices also stands to benefit from the rejuvenation of the Orchard road.

Given Kingsmen’s established brand name, specialization in the design and production of exhibits plus an impressive track record, the BNP analyst expects more contracts coming its way.

The analyst also likes Kingsmen for its strong fundamentals as follows:

Mercedes Benz showroom in South Korea fitted out by Kingsmen.
(1) Sizable net cash hoard of S$26.1 million as of March (13 cents a share versus Mon’s close price of 50.5 cents).

In the absence of sizeable capital expenditure in the foreseeable future, the analyst sees a dividend payout of 40-50% as achievable.

(2) Strong clientele.

70% of its revenue comes from repeat customers.  Longstanding customers include established retailers such as Robinson & Co, DFS Venture, the Dickson Group, FJ Benjamin, Burberry Asia, and reputable exhibitors such as Asian Aerospace, and Reed Exhibitions.

(3) More public shows coming up in Singapore.

BNP expects Las Vegas Sands to work closely with the Singapore Tourism Board to attract more international exhibitions and/or conventions to be hosted by Marina Bay Sands.

Large events planned for 2010 that augur well for Kingsmen include the first Youth Olympics Games in Singapore and Singapore Grand Prix 2010.

(4) Extending beyond Singapore.

Other than public shows in Singapore, Kingsmen also has its finger in the pie for international shows like the 2010 World Expo in Shanghai.

It has been enjoying rising revenue contributions from overseas - Singapore contributed as much as 72% to the Group’s revenue in 2003, but that has since then declined to 40%.


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