Weak tourism numbers. We met with management recently for an update. It came as no surprise that the business outlook has deteriorated over the last 12 months. This meant that both room and occupancy rates have weakened in recent months. In terms of room rates for its Singapore hotel, the decline is by as much as 30%, while occupancy rates have eased by about 10-15 ppt to around 70%. This is in line with the recent weak tourism numbers released by the Singapore Tourism Board (STB). Visitor arrivals to Singapore fell 15.2% YoY to 689,000 in Feb 2009. Average Room Rate (ARR) fell 20.6% to S$205, and Average Occupancy Rate (AOR) dipped 3.3 ppt to 76% in Feb. Revenue per available room also declined 24% to S$156.

Delay of Little India project. In Singapore, the development of its second hotel is on-going, but the opening is now pushed back from the original 4Q2009 to 1Q2010. When completed, this S$120m project will add 328 rooms and is also aiming at the more budget-conscious travellers. With the present weak occupancy and room rates, the postponement is a right decision. Meanwhile, its 65%-owned 216-room hotel at SiHui in China is on track for opening in Jun 2009.

Weakness in other markets. Both its New Zealand and Australian operations are similarly hit by weaker tourism numbers in these counties. In addition, this means that sales of assets (which featured prominently in past financial years) are unlikely to happen this year. Room rates have further weakened in 1Q09 by between 4-5% YoY in New Zealand and Australia. In Malaysia, the market conditions are even more challenging and prospects do not look good for its hotel operations there. Fortunately, contribution from Malaysia has always been small, at 3% of revenue in 2008.

Lack of positive factors. In view of the global economic recession and the direct impact on tourism, the operating environment is challenging and likely to remain so for the rest of the year. Some positive factors included the recent strengthening of the AUD and NZD from March which could translate into some forex gains. Assuming same dividend payout of 3.5 cents, yield is fairly decent at 6.5% based on current price. We are maintaining our FY09 earnings estimates for now and our HOLD rating with fair value estimate of S$0.48 based on 0.4x book.