Orchard Parade’s (OPH) FY08 PATMI of $27.0m was a 22.4% drop from $34.7m in FY07. The results were below our expectations due to higher than expected losses from its associate, Yeo Hiap Seng, dragging down earnings in the 4th Quarter. Stripping out exceptional items, core earnings actually grew by 31.7% yoy.

Revenue from the hospitality segment saw a 13.8% improvement in FY08 to $55.3m, owing to higher average room rates and occupancies. This also represented 80% of the group’s FY08 topline. Revenue from property investment also improved by 11.8% to $10.8m, but the group saw a $1.2m reduction in the fair value of its investment properties in 4Q08.

Associate earnings from YHS were reversed from a $6.0m gain as of 9M08 to a loss of $2.1m as of FY08. After scrutinizing YHS’ results, we realized that while gross profits improved for its F&B business, the Group still posted a $16.7m loss in 4Q08. This is mainly some revaluation and impairment losses totaling $17.8m.

The progress of sales of units at Floridian and Jardin (under YHS) have been slow at best. While the Group intends to continue to drive sales at the two projects, sentiments in the property market remain weak. The last caveats lodged for Floridian and Jardin were in December and February 2008 respectively.

In light of the challenges facing hotel operators in 2009 and the continued weakness in the property market, we have lowered our FY09 and FY10 forecasts by 30.4% and 33.6% respectively. We have lowered our target price to $0.56, pegged to a 60% discount to RNAV. We also now peg YHS’ valuation to its book value. The stock appears fairly valued and we maintain our HOLD recommendation.