• Amara posted strong 2Q14 net profit at S$4.6mn (+116% yoy, +35% qoq) due to higher contributions from all divisions and lower cost of sales
• Completion of Amara Bangkok delayed to 4Q14
• Expect strong income stream to continue into 2H14 with higher seasonal hotel demand
• Maintain BUY with unchanged TP $0.70

What is the news?

Favourable financial performance achieved in 2Q14. 2Q14 revenue at S$19.7mn (+10 yoy) with higher contributions from Hotel Investment and Management (HIM) and Investment Property 100AM. The hotel segment contributed 64% of the revenue with 32% from Property Investment and Development division. Cost of sales fell 31% to $1.9mn with the write back of construction cost of project and PATMI doubled yoy to S$4.6mn.

How we view this

The 1H14 performance was in-line with our expectation. 1H14 revenue S$37.6mn and PATMI S$8 accounting for 46% and 31% of our FY14 estimates. We expect the performance in the 2H14 to improve with the traditionally stronger demand in second half of the year.

In 2Q14, there was a dip in leisure travel demand in the region with visitor arrivals from China fell as much as 31% in May. Despite of this, the flagship asset Amara Singapore continues to attain sturdy performance with steady RevPar $$170 and 87% occupancy rate, supported by its resilient corporate customer base. Amara aims to stay competitive with upgrading the rooms and provision of quality F&B services in the premises. 100AM is fully occupied and the management continues to optimise rental with the right tenant mix.

Amara Bangkok’s opening was delayed and is currently at its final stage of development progress with interior finishing pending completion. Amara’s first overseas hotel is estimated to begin operations in 4Q14 and be fully operational in FY15. We estimate Amara Bangkok to contribute significantly (~20-25%) to the hotel revenue in FY15.

Investment Action

Due to the delay on completion of Amara Bangkok into 4Q14, we lower the FY14 earnings by 10%. Amara’s bottom-line is anticipated to bolster significantly within the next 2 years attributed to (1) the completion of overseas hotel developments in the pipeline, (2) higher share of profits of associates with recognized revenue from the fully sold JV project CityLife@Tampines (Amara’ s stake 40%) TOP in FY16. We remain optimistic on Amara’s operational performance and maintain our BUY call with unchanged TP$ 0.70, pegged at a discount of 40% to our RNAV.

Source: Phillip Securities Research - 14 Aug 2014