UOL Group Ltd: Firm tourism data supports an improving hotel outlook

By Foo Sze Ming
Fri, 11 Jun 2010, 09:34:09 SGT

Singapore tourism industry continued to see strong data for the month of April. According to statistics from the Singapore Tourism Board, visitor arrivals jumped 20.4% YoY in April. Operating statistics for hotels in Singapore were also encouraging. The strong recovery in the Singapore tourism industry this year should translate into stronger revenue and earnings contribution from Pan Pacific Hotels Group. After raising our FY10 Revpar growth projection by 2-7 ppt, our FY10 hotel revenue forecast has now increased by 2.5% to S$311.7m. Despite the 3.5% decline in the STI index since our last report on 13th May, share prices of UOL’s listed investments – Pan Pacific Hotels Group, UIC and UOB turned in positive return of 1.1% on aggregate. As such, our fair value, which is pegged at parity to our RNAV, has now been raised to S$5.37 (previously S$5.33). With an upside potential of 44.3%, we reiterate our BUY rating on UOL.

Tourism and hotel statistics remain strong. On the back of the improving economic outlook and the opening of the two integrated resorts, the Singapore tourism industry continued to see strong data for the month of April. According to statistics from the Singapore Tourism Board, visitor arrivals jumped 20.4% YoY in April. This was a new record high for the month of April and also the fifth straight month in which record monthly visitor arrivals were made. Operating statistics for hotels in Singapore were also encouraging. For April, hotels recorded an average Revpar of S$179, representing a 33.3% YoY increase. As a result of the higher visitor arrivals, standard average occupancy rate had also increased by 14 ppt YoY to 85% in April.

What does it mean for UOL? Hotel operation is the second largest revenue contributor to the UOL Group (approximately 30% of revenue). Almost all its hotel revenue comes from its 81.57% owned listed subsidiary, Pan Pacific Hotels Group (PPHG) and 30% of PPHG’s revenue comes from its Singapore hotels. As Singapore is a key market for PPHG, the strong recovery in the Singapore tourism industry this year should translate into stronger revenue and earnings contribution from PPHG, and also for UOL this year. In light of the recovery in global tourism, we are now raising our revenue estimate for UOL’s hotel operations. After raising our FY10 Revpar growth projection by 2-7 ppt, our FY10 hotel revenue forecast has now increased by 2.5% to S$311.7m, which represents a revenue growth rate of 5.9% YoY. The outlook for the Singapore tourism industry looks good with the recent opening of the two integrated resorts. But there is still potential downside risk that could come from the de-valuation of euro, which will make euro-zone a less expensive destination for tourists. Without any exposure in Europe, UOL could be negatively affected if such a scenario occurs.

Fair value raised to S$5.37; Maintain BUY. Despite the 3.5% decline in the STI index since our last report on 13th May, the share prices of UOL’s listed investments – PPCG, UIC and UOB turned in positive return of 1.1% on aggregate. As such, our fair value, which is pegged at parity to our RNAV, has now been raised to S$5.37 (previously S$5.33). Rising uncertainties in global equity markets could lead to greater volatility in share prices of UOL’s listed investments but at UOL’s current price, investors are protected by a large margin of safety (upside potential of 44.3%). We reiterate our BUY rating on UOL.

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