Drop in occupancy and room rates. Tourism activities remained subdued, not helped by the current swine flu fear which has further aggravated the decline in tourism receipts. As a result of this, we expect room rate and occupancy levels to remain weak, further supported by weak tourist arrivals at its flagship Singapore hotel (based on data from the Singapore Tourism Board). Based on our last discussion with management, room rates for its Singapore hotel fell by as much as 30%, while occupancy rates have eased by about 10-15 ppt to around 70%. The delay of the Little India project, its second hotel in Singapore, is not expected to have any material impact in light of current low occupancy rate. This scenario is likely to be similarly replayed at its New Zealand and Australian operations, and we have accordingly lowered our estimates for FY09 and FY10.
Maintain HOLD, raised fair value estimate to 58 cents. While the worst appears to be over for the global economy, tourism remains frail brought on by concern over the swine flu. This has pushed back our expectation of a recovery for the hotel and tourism industry. We have lowered FY09 net profit from S$15.5m to S$14.4m and also revised down FY10 earnings from S$16.4m to S$14.8m. However, we have raised our discount to NAV to 50%, upping our fair value estimate from S$0.48 to S$0.58. Given the current price of S$0.535, we are maintaining our HOLD rating. Do note that we have also reduced our DPS expectation to 2.0 S cents (giving yield of 3.7% based on current price) as we expect management to conserve cash to ride out the current challenging conditions.
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