This is one of my biggest holding position so I thought I should write my thoughts on their latest results.
If you just browse through their results on a glance, you should see flat results for Q4 thinking that they are doing better. They are actually not and the same issues surrounding the Singapore and Maldives market continue to languish them low. Having said that, I do see some stability in their ARR and Revpar and my thesis remains that the next few years supply for the Singapore (major) market are trending lower at 3.4% than previously known.
I’ll try to dissect them through the several markets they have presence in.
On the Singapore market, Revpar continues to hit record low of $154 (The last low over the past 10 years is $149 during GFC days) and we have not seen a reversal of the bottom just yet. I wrote in my last article (Link Here) that I am predicting this to bottom out and a reversal over the next couple of quarters ahead. My thesis still remains.
On the Maldives market, while tourism arrival is growing well over the past couple of years and is expected to reach 2m customers a year by 2020, the strengthening of the USD and corresponding room rates downwards adjustment means that NPI for the quarter is down.
Personally, I feel it’s a bit disappointing because they had intended to venture out of the Singapore market and go into Maldives but face similar troubles in this market. If not for the minimum guaranteed income provided for the Angsana Velavaru resort, the NPI registered would have been a lot lower.
If there are any positives coming out of the news, it is that the Japan market seems to be reversing out and will continue to outperform in the next 3 years.
The Japan tourism board is running an initiatives to boost tourism growth and the recent approval of the integrated resorts will help to boost tourism growth in the industry.
Between now to 2020, tourism growth is expected to grow at a CAGR of 13.6%. This coincides with the 2020 Olympic which Japan is hosting and the boost in the next 3 years will help the Japan market immensely.
The other positive news is coming out of the New Zealand market.
They changed the lease structure to include a variable component now on top of the lower fixed rent. This means that if the hotel is doing well, then we should see a much improvement in the variable rent. This is what happened as NPI doubled after the changes.
2H16 DPU is at 5.55 cents and will be paid in February.
Full year dividend is at 10 cents and at current market price it translates into 7.1% yield which I thought its decent.
Even though there are some persistent headwinds and the incoming threat from Airbnb alike, I think valuations have reflected the headwinds and we should see stronger performance in the years ahead.
The share price is up 2.2% today after the release of the results today, which I think represents the general bullishness of the market from the public quite unwarranted.