Forex ate into bottomline. Hotel Grand Central (GRAN) posted a 74% decline in FY08 earnings to S$14.6m. This was mainly due to losses in 4Q08 of S$2.4m (versus a profit of S$12.4m in 4Q07). The culprit was the ballooning in foreign exchange losses which swelled to S$16.9m in FY08 (or S$8.2m in 4Q08). We were earlier going for total foreign exchange lossesof S$11.1m and the difference of S$5.8m was mainly the reason behind the differential between our forecast and the actual profits. The unrealised foreign exchange loss was mainly due to the translation of fixed deposits denominated in AUD, NZD and MYR versus the SGD.

On the operational side, the decline in revenue, down 21% YoY to S$126m in FY08, was due to lower sales, fewer hotels in 2008 and the weakening of the NZD (down an average of 11%) and the AUD (down an average of 5%) versus the SGD. Last year's revenue included a gain on the sale of a hotel in Perth for S$21.9m. Fortunately, its overall results was partially mitigated by better performance from its flagship Singapore hotel, which enjoyed higher room rates in 1H2008.

Hurt by economic slowdown. With the deteriorating economic outlook, and with the Singapore economy slipping into recession this year, its Singapore operations will offer no comfort to support the already weaker operations in Australia, New Zealand and Malaysia. Most hotels are seeing sharply lower occupancy and room rates and GRAN is no exception. Already, the latest numbers from the Singapore Tourism Board (STB) are bleak and showed a 12.9% YoY decline in visitor arrivals in Jan 2009. In addition, the average room rate (ARR) fell 11.7% YoY to S$209, while average occupancy rate (AOR) reached only 67% in Jan 2009, a decline of 17.7 ppt from Jan 2008. Revenue per available room (Revpar) plunged 30.2% to $140 in Jan 2009.

Maintain HOLD, but no price drivers. The outlook is not pleasant, and the tourism dependent industry is equally vulnerable. We expect the outlook for the rest of the year to remain difficult. We are retaining our HOLD rating and fair value estimate of S$0.48 based on 0.4x book. We see no major price drivers for the near future, but a good dividend yield of 7% (at current price) should provide some share price support.