Price (S$) 0.88
12 month price target (S$) 0.95
In line with expectations; yield management a key focus
What surprised us
OUEHT reported income available for distribution of S$16.3mn for the 68 days from its listing date (25 July) to end 3Q13 (Sep 30), in line with expectations (2% above GSe).
(1) Mandarin Orchard Singapore (MOS) RevPAR of S$261 vs. prospectus forecast of S$253, driven by higher occupancy which offset marginally lower ADRs, amid a challenging operating environment.
(2) NPI margins at Mandarin Gallery (MG) improved to 76.5% vs. 75.3% in 1Q13 on higher revenue and lower marketing/utilities expenses, in line with our expectations.
(3) AEI updates: The Meritus Club Lounge and conversion of 14 rooms at MOS have been completed, with another 12 rooms to be converted by the end of 2013. Separately, the renovation program to refurbish 430 rooms has commenced, to be completed in phases in 2014 and 2015.
(4) Gearing at 32.0%; 2.2% cost of debt, 100% fixed. No refinancing due in 2014 and 2015.
What to do with the stock
OUEHT continues to deliver on yield management initiatives, capitalizing on its prime location in the heart of Orchard Road. MOS RevPAR in 3Q exceeded our expectations, despite the challenging operating environment in recent quarters, with ADRs expected to bottom in 4Q, in our view.
Management is making efforts to broaden its visitor base and target the high-yielding Japanese tourists, a positive diversification step in our view; Indonesians make up c.35% of room nights, though management has yet to see a slowdown from the weaker Rupiah. Maintain Neutral and 12m DCF TP of S$0.95. OUEHT is trading at 6.9%/7.3% FY13/14E div yield vs. FEHT’s (FAEH.SI) 6.3%/6.5%.
Risks: Pick-up in tourist arrivals, earnings volatility.