A modest recovery
•Visitor arrivals in 2014 to continue growing
•Modest improvement in operating metrics but upside to be capped by new hotel openings
•Top picks: Genting Singapore and CDREIT
Visitor arrivals to remain on an uptrend. At 10.5m visitor arrivals (+8.5% y-o-y) as of YTD 8M13, visitor arrival growth continue to exceed expectations. Looking ahead, we believe 2014 will continue to see higher visitorship given: (I) Robust outlook for travel within the ASEAN region, especially major visitor source markets of Indonesia, India and China (c.45% of total visitors), (ii) The expected pick-up in business activities and a healthy pipeline of MICE and major conferences in 1H14. As such, we expect visitor arrivals to grow 6.0% y-o-y to 16.3m in 2014.
Supply risks however is not abating yet; CBD hotels and Orchard Road hotels to feel the heat. Over 4Q13-2014, the industry will see close to an additional 3,400 rooms or a 6% increase in room supply. Unlike 2013 where hotels are mainly in the mid-tier segment, 2014 will see completions from all sub-segments of the hotel market and the opening of major international branded operators like the Westin, Sofitel and Carlton in the Central Business District (CBD), Holiday Inn Express and Traders in 2H14 along Orchard Road. As these hotels are likely to compete directly with existing hotel chains for the corporate and leisure business, we expect the operating environment to remain competitive.
A modest recovery in RevPARs; upside from recovering business travel/MICE not priced in. With 16.3m base case forecasts in visitor arrivals, we forecast demand for accommodation to grow in line with supply growth over 2014, meaning occupancies to remain high at c.85-87%. While a pick-up in business travel and MICE travellers might mean higher average daily rates (ADRs), we believe that competition will continue to remain stiff, especially hotels in the CBD and Orchard Road. This is expected to cap upside in ADRs/RevPARs to c.3% y-o-y growth.
BUY calls. Genting Singapore (Upgrade to BUY, TP of S$1.75) remains the main beneficiary of the sustained growth in visitor arrivals and tourists spending in 2014. Among the hoteliers, we believe CDL Hospitality Trusts (BUY, S$1.84) offers the most leverage to the expected uptick in business and MICE travellers amongst competition in the market.
Publish date: 06/12/13