• Revenue dropped 1.4% YoY
• Occupancy fell 3.5 ppt
• Lowered fair value

1Q16 results below expectations

Revenue dropped 1.4% YoY to S$14.5m, making up 21.7% of our full-year forecast. The decrease was mainly due to lower room revenue recognized, but partially offset by greater contribution from three hotels post asset enhancement initiatives which were completed in 2015.

Net profit gained 4.4% to reach S$3.4m, but only made up 17.2% of our full-year forecast. The group’s average occupancy rate dropped 3.5 ppt to 76.0% this quarter, contributing to a 3.8% YoY fall in REVPAR to S$79.4m.

Uncertainties persist in the sector

Given headwinds in the hospitality segment, we lower our FY16 revenue to S$58.1m and PATMI to S$24.6m. As noted by other hospitality firms, the government plans to invest S$70m over the next five years to boost tourism. While we are optimistic about the investment, we continue to see uncertainties in outlook for the rest of the year.

Negative headwinds in the form of upcoming hotel room supply may offset the positive effect of an even-numbered year with more MICE events as well as the positive trends hinted at by double-digit YoY growth of tourist arrivals from China, Indonesia and Thailand for Jan and Feb.

Furthermore, rising interest costs remain a concern with regards to the group’s performance. Finance costs for the group increased 11% YoY for the quarter due to higher interest rates on loans.

Re-adjust FV on RNAV basis

For a one-year horizon, we derive a fair target P/B of 0.49x (based on assumptions of 0% longterm growth, ROE of 2.1%, and beta of 0.50x). This comes close to the 0.52x average 1Y price to book of GPH’s closest comp listed on the SGX, Hotel Royal.

For FY14 and FY15, GPH traded at an average discount to book of 50%. Given GPH’s low proportion of free float at 28.4%, we apply a 55% discount to our RNAV to arrive at a fair value of 31 S cents, from 33 S cents previously.

While we keep to our long term valuation of 31 S cents, we advise investors to accumulate shares at 28 S cents and lower given recent market weakness. Maintain HOLD.

Source: OCBC Research - 10 May 2016