OUE

OUE: CLSA interviews with Mr Michael Sengol, CEO of Meritus Hotels and Resorts, the hotel arm of OUE. Though he joined just two yrs ago, the veteran hotelier, with >30yrs of experience, has successfully transformed Mandarin Orchard, OUE’s single largest hotel. The 1051-rm hotel is the 2nd largest hotel in Spore, and has won ~200 awards last yr.

Mr Sengol believes that the upside in the tourism industry is great, given that Spore has more to offer now. Says the opening up of flights from secondary cities in China, Indonesia and India will boost tourist arrivals. Thinks that the hotels here are underpriced and will each S$500 room rate in the next 4-5 yrs (this compares with a 5-star hotel in Bombay charging US$500/night, and the much higher rates in Korea, Tokyo and HK).

CLSA notes the tourism sector has continued to enjoy strong growth with tourist arrivals hitting a record 13.2m last yr, +14% yoy. Highlights that hotel occupancy rate has consistently ranged highly btwn 83 – 90%. Believes demand is set to grow further as the govt will be making another $905m invmt to spur growth in tourism (Spore Tourism Board target 4yr CAGR of 6.5% to hit 17m visitor arrivals by 2015). .

The hotel segment represents 24% of OUE’s GAV. Despite being optimistic on OUE’s hotel business, CLSA is concerned on the weakness from other major parts of its business, such as office (48% GAV) and high-end residential (17%). Adds, OUE’s earnings profitle is changing with increasing office contribution once the new office buildings (OUE Bayfront and One Raffles Place T2) start operations. Expects hotel revenue to reduce to 54% this yr and 44% in 2013, from 65% last yr.
The house keeps its Sell rating with TP $2.04.