Hotel Royal's result came in within expectation with top line growing 0.8% YoY to S$8.5m. Gross profit was depressed due to incorporation of Penang operations, which is currently under turnaround make-over.

Similarly, administrative expenses were also increased significantly by about 45.8% YoY due to its Penang operation. This was partially offset by lower finance cost on reduced refinancing rate and lesser fair value loss on its trading portfolio.

Overall, the Group managed to book a net profit of S$1.7m, representing a YoY increase of 3.8%. Operating cash flow continues to remain positive which speaks of the stability of the Group.

On its outlook, we feel that Hotel Royal will continue to face headwind for FY09 as the global economy has yet to show convincing signs of recovery hence dampening travelling mood. On top of that, the recent development of H1N1 flu virus may further deteriorate the already muted travel industry.

We maintain our earnings forecast and RNAV estimate of S$3.96 but increase our target price due to changes in market illiquidity discount from the previous 55% to current 40%. New target price stands at S$2.38. Maintain HOLD.