Revenue in 2Q09 fell 25% YoY, but was flat QoQ. For 1H09, operating profit plunged 49% to S$10.0m. This was seen from the decline in operating margins which slipped from close to 30% in 1H08 to around 20.7% in 1H09. Acquisition of holiday Inn in Adelaide. This month, the group also announced the purchase of the Holiday Inn at Adelaide for A$34.9m. This comprised of a 181-room hotel located within the Central Business District in Adelaide. Management expects this acquisition to add abut 0.27 cents to its EPS.
Better global prospects, but tourism likely to remain muted. Economic outlook looks better now compared to a quarter ago, and we expect tourism activities to pick up, albeit from a low base. However, with still-cautious consumer demand, we expect the operating environment for hotels to remain challenging. While occupancy rates could possibly edge up in its core markets (Singapore and Australia), room rates have limited potential for upward adjustments. This was similarly reflected in the management's brief statement that "the hotel market conditions in the countries where the group operates in, are not expected to recover in 2009 compared to last year."
Maintain HOLD and fair value estimate of S$0.58. While we are maintaining a decline in FY09 operating profits, we are raising our bottomline estimates to take into account the strong foreign exchange gains seen in 2Q09, which look unlikely to be repeated in the 2H of this year. With this key adjustment, our FY09 net profit has been raised to S$29.6m, up from S$14.4m. However, at the operating level, we expect operating profits to decline 38% YoY to S$19.5m in FY09. We are also maintaining our fair value estimate at S$0.58. After our previous report in May 2009, the stock has moved up 19% to the current price of S$0.635. We see limited price drivers ahead and are maintaining our HOLD rating.
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