Excerpts from DBS report

Analysts: Geraldine WONG & Derek TAN

Buy ahead of a spectacular quarter
• Channel checks indicate that hoteliers are expected to deliver better than expected 3Q22 results

• Room rates have leaped past pre-COVID levels, fueled by strong MICE line-up in 2H22 and longer average length of stay which has almost doubled from 2019 level

• Hospitality S-REITs’ share prices have flat-lined in recent months but look set to re-rate further

• Our top picks are CDLHT and ART


Hospitality9.22
Robust travel demand and strong earnings to drive share price re-rating. With Formula One (F1) around the corner and a robust line-up of MICE events until the end of 2022, we believe that 2H22 will turn out to be a spectacular half for the hospitality industry.

"A robust pipeline of 66 MICE events scheduled for 2H22 after next weekend’s F1 will continue to drive corporate demand and ‘bleisure’ demand."

In our channel checks, we believe that hospitality S-REITs are likely to report strong RevPAR growth with potential for upside surprises come 3Q22 results/operational updates in its key market – Singapore (c.40% of assets) – as the biggest driver.

We maintain our top sector picks Ascott Residence (ART) Trust and CDL Hospitality Trusts (CDLHT) with TPs of S$1.40 and S$1.55, respectively. Our TPs are the highest on the street, pegged to target P/NAV multiples of 1.18x, which is within the +0.5 to +1.0 standard deviation (SD) range.

Room rates have hiked past pre-COVID levels; strong MICE lineup to drive demand. We observed that average daily rates (ADRs) for the sector have sped past 2019 levels since 2Q22 with the spread continuing to widen in 3Q22.

Our channel checks indicate that most hotels are seeing higher ADRs on the back of rising occupancy rates as rooms (from downtime) are added back to overall stock.

The F1 weekend looks robust with selected 4-star to 5-star hotels charging S$1,000 – S$2,500/night for that weekend and a majority of hotels are already “fully booked”. Thereafter, while rates are expected to cool sequentially, we note that hoteliers appear to be maintaining rates at close to or higher than pre-COVID
levels.

A robust pipeline of 66 MICE events scheduled for 2H22 after next weekend’s F1 will continue to drive corporate demand and ‘bleisure’ demand, which we note has led to close to a doubling in average length of stay this year to 6.0 days versus c.3.4 days back in 2019.

RevPAR growth to outpace cost increases. Hospitality S-REITs’ share prices have flat-lined since Jun-Jul 2022 over concerns of the impact of an economic slowdown on distributions as well as their ability to maintain DPU growth due to higher costs.

The ability for RevPAR to outpace higher operational costs and interest expense will be a key item to monitor, in our view.


Full report here


Share Prices

Counter NameLastChange
AEM Holdings4.040-0.090
Avi-Tech Electronics0.2850.005
Broadway Ind0.137-0.001
China Sunsine0.460-0.005
DISA0.003-
Food Empire0.510-
Fortress Minerals0.310-0.030
Geo Energy Res0.365-0.005
Golden Energy0.800-0.010
GSS Energy0.050-
InnoTek0.435-
ISDN Holdings0.440-0.015
ISOTeam0.104-
IX Biopharma0.136-0.003
Jiutian Chemical0.079-
KSH Holdings0.340-0.005
Leader Env0.0500.001
Medtecs Intl0.112-0.002
Meta Health0.029-
Moya Asia0.088-0.001
Nordic Group0.500-0.005
Oxley Holdings0.158-0.002
REX International0.225-0.005
Riverstone0.545-0.010
Sinostar PEC0.180-0.010
Southern Alliance Mining0.630-
Straco Corp.0.410-
Sunpower Group0.285-0.005
The Trendlines0.086-0.003
Totm Technologies0.124-0.002
UG Healthcare0.179-0.001
Uni-Asia Group0.890-0.030
Wilmar Intl3.8900.010
Yangzijiang Shipbldg1.050-0.030

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