Hospitality stocks 'worth a fresh look'

SINGAPORE - Investors might well check out some hospitality shares, given the prospects that bullish analysts see for the industry.

A slowdown in tourism growth means a muted year ahead for hotel stocks, but opportunities for expansion look robust, they say.

Fewer visitors are expected. On Monday, the Singapore Tourism Board said, over the next decade, arrival growth will slow to 3 to 4 per cent year on year, while tourist spending will rise 4 to 6 per cent.

The numbers signal a marked slowdown from the record growth posted between 2002 and last year: Visitor arrivals grew at a compounded annual rate of 6.6 per cent while tourism receipts shot up by 10 per cent.

Still, market watchers do not see much gloom ahead.

DBS Vickers analyst Derek Tan said the opening of new lifestyle hot spots such as Sentosa's West Zone, the River Safari, the National Art Gallery and the Sports Hub will "position Singapore as an attractive tourist destination".

"We believe these attractions - together with the strong pipeline of meetings, incentives, conferences and exhibitions (Mice) events brought in by the two integrated resorts - will help Singapore achieve its target of 17 million visitor arrivals by 2015."

OCBC Investment Research analyst Sarah Ong said the first half of the year is likely to remain challenging for hospitality outlets.

"We understand that players in the local service residence industry believe demand for this year will remain flat, with average daily rates staying flat or declining."

Ms Ong said hotel room supply is set to grow 5.8 per cent a year until 2015. In contrast, room demand will grow 5.4 per cent a year.

"The local lodging industry is facing a potential oversupply situation over the medium term."

The average length of stay per visitor is declining as well, at least partly because of the strong Singdollar, which means fewer hotel room nights, Ms Ong added.

More tourists could opt to stay in non-hotel accommodation.

Ms Ong named Global Premium Hotels as her top pick, noting that economy hotels have been the best performers.

UOB Kay Hian analysts Vijay Natarajan and Vikrant Pandey said key risks include the impact of global economic factors on tourism, a strengthening Singdollar and the outbreak of epidemic diseases such as Sars and avian flu.

CDL Hospitality Trusts is their top pick.

"It is a key beneficiary of visitor arrivals as its hotels are strategically located along Orchard Road and near the integrated resorts," they said in a report.

The trust's Singapore hotels account for 82 per cent of its total assets, with an inventory of 2,716 rooms.

Mr Tan of DBS Vickers said Far East Hospitality Trust is expected to perform better than CDL Hospitality Trusts as it has a more price-competitive portfolio.

Its properties are also undergoing refurbishment to attract higher-paying guests, he noted.

Maybank Kim Eng analyst Ong Kian Lin remains bullish about the outlook for Overseas Union Enterprise (OUE).

OUE's hotels, managed by Meritus Hotels and Resorts, include Mandarin Orchard Singapore and Marina Mandarin Singapore.

The group has more than 1,900 rooms, making it one of Singapore's largest hotel room owners. It was thus able to benefit from the tourism boom in recent years, said Mr Ong in a report.

OUE should see an average occupancy rate in Singapore of 85 per cent over the next three years, and the floating of a hospitality real investment trust is likely to push up the stock price, he added.

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