• Competitive and demand headwinds for hotels
• Domestic residential outlook muted
• Lower FV estimate to S$4.83; maintain BUY

Hotel results affected by competition and reduced demand

HPL reported that its FY15 PATMI had dipped 34.4% to S$81.7m due to weaker performances from Singapore hotels which were affected by stronger competition with reduced consumer spending and lower corporate travel demand, and lower contributions from the property development segment (given slower sales at The Met condominium in Bangkok and Mar14 TOP of Tomlinson Heights).

We understand that ongoing refurbishment and repair works at the Four Seasons Resort Bali at Jimbaran Bay and the Holiday Inn at Vanatu also affected the hotel segment’s performance. These ere partially offset by a higher share of results of JV/associates which rose from S$33m to S$36.2m mostly due to divestment gains of certain Shanghai assets by an associate.

In terms of the topline, FY15 revenues dipped 5.7% to S$579.5m similarly due to lower contributions from both the group’s Hotel and also roperty Development segments. HPL also successfully launched two residential projects in London (Burlington Gate and Holland Park Villas) and income from these projects will be recorded upon completion. A first and final cash dividend of 4.0 S-cents, in addition to a special dividend of 4.0 S-cents, was proposed for FY15 (versus total dividends of 10.0 S-cents in FY14).

FV estimate lowered to S$4.83, versus S$5.32 previously

Overall, we had judged these results to be in line with expectations as FY15 PATMI and revenues constitutes 101.8% and 99.3% of our full year estimates. While management expects the group’s hospitality results to remain fairly resilient given the strong branding and geographical diversification of their hotel portfolio, they anticipate challenging conditions ahead given stiff competition, uncertainties in the global economic environment and difficult political and environmental conditions of the countries the group operates in.

The group continues to enjoy a firm balance sheet as at end Dec 15 with S$158.8m in cash and a net gearing of 49.1%. We update our valuation model for higher discount rates and softer ASPs, and our fair value estimate dips to S$4.83, versus S$ 5.32 previously. Maintain BUY.

Source: OCBC Research - 7 Mar 2016