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KIM Eng has called a 'hold' on Hotel Properties Limited (HPL) and Orchard Parade Holdings (OPH), pointing to the less-than-stellar performance by the hotel sector. Further slides in average room rate (ARR), average occupancy rate (AOR) and revenue per available room (Revpar) are likely through the course of the year.
In a research note dated March 6, Kim Eng highlighted that Revpar has been on the decline since September 2008, falling from $224 to $140 in January 2009, the lowest level since August 2006.
Hotels in the luxury tier saw the steepest fall, with Revpar down 45 per cent to $219 in January, compared to September.
Similarly, the AOR for January dropped by 18 percentage points to 67 per cent - dipping below the 70 per cent mark for the first time since January 2004.
While the economic downturn brings its own set of challenges, another issue facing the industry is the additional supply of rooms from hotels that come onstream in 2009 and 2010.
A large chunk of the 2,600 rooms at the Marina Bay Sands (MBS) will be ready by the end of this year, while Resorts World at Sentosa (RWS) will provide another 1,830 hotel rooms in 2010.
Based on URA's statistics, Kim Eng reckons that excluding the rooms from MBS and RWS there are another 1,640 hotel rooms slated for completion in 2009 and 1,426 rooms in 2010.
'Total available room-nights will increase by 12 per cent in 2009 and a further 11 per cent in 2010 to 11.7 million and 13 million room-nights respectively, from the 10.4 million as of end-2008,' Kim Eng said. It added that AOR could fall to 55 per cent by the year-end and to 50 per cent by end-2010 if the integrated resorts fail to reel in the tourists.
However, if the various global stimulus packages and efforts to push Singapore as a tourist destination do the trick, 'AOR could possibly stabilise at around 60-65 per cent for 2009 and 2010'.
'The last time AOR fell below 60 per cent was in 2003, at the height of the Sars outbreak, when AOR fell to a low of 34 per cent in May that year,' Kim Eng said.
As such, Kim Eng remains cautious on the sector, maintaining 'hold' recommendations on HPL with a target price of $1 and OPH with a target price of $0.56.
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