1H23 Results – Leave the party poppers to the end
- CLAS reports DPS of 2.78 Scts (up 19% y-o-y), in line with our full year estimates
- 2Q23 RevPAR rebounds back to seasonal highs on par to 4Q22, at c.98% of pre-COVID levels; most key markets operate above pre-COVID levels, while China and Vietnam close the gap against pre-COVID by another c.10% in the past quarter
- Rental income upside from conversion of Singapore leases this year (Ascott Orchard and Riverside Hotel CQ) to move the needle for Singapore RevPAR
- We currently have a BUY call with TP of S$1.30, More insights post analyst briefing
- CLAS reported 1H revenue of S$346.9m (+30% y-o-y), Gross Profits of S$154.4m (+31% y-o-y)
- Distributable income grew 26% y-o-y to S$96.3m while DPS rose 19% y-o-y to 2.78 Scts, making up 47% of our full year DPS.
- 2Q23 Portfolio RevPAR grew 20% y-o-y to 98% of pre-COVID levels, rebounding back to seasonal highs matching 4Q22.
- Markets performing above pre-COVID levels include Australia, Singapore, UK and US, with Japan a surprise addition to the list this quarter
- China and Vietnam markets still at about c.20% below pre-Covid 2Q19 levels albeit a 5% – 15% q-o-q improvement.
- For the period, long stay contributed c.17% to total gross profit.
- Management contract saw the highest y-o-y uplift in gross profits at +46% y-o-y, as opposed to MCMGI (Management contracts with minimum guaranteed income) at +23% and master leases at +9%.
- Gearing stable at 38.6% (vs 38.0% as at Dec-22), while cost of debt at 2.3% (+ 50 bps since Dec-22) and within expectations
China recovery: a U shaped recovery instead of V? We see a myriad of factors to give a boost to Singapore’s tourism market come 2H23. While China’s recovery runway has been in the question the past couple of months, recent data point that China outbound travel is happening, albeit missing investor’s expectations of a V shaped recovery. Top China outbound markets of HK and Macau have recovered past the 60% mark in the latest month data set from June. Singapore’s stands optimistically within the APAC cluster, and a ‘4h ride’ radius away from China – a term commonly used by China-based online travel agencies, and well-positioned for the U shaped recovery. Nonetheless, we note that upcoming international spotlights will be on Singapore’s F1 weekend and the start of concerts to give a boost on the MICE front, giving much promise to a seasonally higher 2H23.
Singapore RevPAR operates above pre-COVID levels, Rental income upside will come from lease conversions. Singapore assets continue to outperform peers within the APAC market with numbers more apparent in CLAS’ management contract hotels such as Citadines Mount Sophia which are commanding rents at c.20% above 2Q19 levels. We see further value extraction from the local market as CLAS looks to unlock further variable rental upside from the conversion of Ascott Orchard (from master lease end of last year). Another notable conversion project being Riverside Hotel CQ’s rebranding into a luxury themed hotel by year end will potentially see RevPAR reaching a notch higher when completed, alongside the lease conversion of that asset into management contract structure. We also recap that CLAS still has an additional c.200 rooms post Liang Court redevelopment to add to the portfolio come FY25, an exciting development line-up we see for the SG market.