Hospitality stocks expected to rise in short-term

Hospitality stocks look set to get a short-term boost these couple of months as tourist arrivals continue to rise.

Experts said they expect some tourists to re-route their vacation to Singapore instead of Japan as the country is still grappling with the aftermath of the March 11 earthquake.

And this will only mean that the long-term prospects of the hospitality industry remain good.

An average hotel room in Singapore cost about S$220 in February. Consultancy firm CBRE Hotels expects room rates to end the year at between S$230 and S$240.

And this uptrend is expected to continue despite the planned increase in the number of hotel rooms.

Robert McIntosh, executive director, Asia pacific, CBRE Hotels, said: “The IRs are now going to be available for the whole year instead of only about half of last year. So that will drive demand relatively for the first half of the year.

“There’re still more hotel rooms, so there’s more capacity. The new positioning of Singapore, with the marketing view of Singapore through the STB, will certainly help. And as the economy improves as well, that (will) all help generate extra demand for (hotel rooms) in Singapore.”

Investment analysts said the increase in room prices mean hospitality-related stocks will be one of the beneficiaries.

Some also see potential short-term upside due to tourists choosing Singapore over Japan.

Derek Tan, equity research analysts, DBS Vickers, said: “So I think Singapore do stand to benefit from this unfortunate event in Japan. Essentially, if you compare Singapore and Japan, the inbound tourist flows, we note that (they are) very similar in terms of the kind of target markets that they attract – very Asian based.

“So naturally if they do want to look into alternative destinations, Singapore would naturally pop up in the minds of tourists on that front.”

However, others said the spillover will be minimal.

Terence Wong, co-head of research, DMG & Partners Research, said: “I think the most obvious will be the aviation as well as the hospitality sectors.

“Problems in this region lead to fewer people wanting to travel here. And even if things may be fine around Singapore, if you have foreign tourists that read about it, they would rather just avoid and go somewhere closer to home.”

Overall, observers expect the tourism arrivals to be within the Singapore Tourism Board’s forecast of between 12 and 13 million this year, up from the 11.6 million recorded for last year.

Going forward, with a broadly positive tourism market, DBS Vickers expects CDL Hospitality Trust to deliver a return of over 15 per cent for this year.

CDL Hospitality Trust closed on Monday at S$2.00, down 3.8 per cent from the start of the year.

DBS Vickers also sees a 25 to 30 per cent upside for Genting Singapore’s share price for this year, compared with its current price.

Genting Singapore ended on Monday at S$2.09, down 4.6 per cent from the start of the year.

The increased interest in the hospitality sector has also led CBRE to anticipate more hotel REIT listings in the second half of this year.

Source : Channel NewsAsia – 4 Apr 2011

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