Hotel, tourism-linked stocks could get a lift as visitor arrivals pick up

HOTEL and tourism-linked counters could get a shot in the arm from a boost of visitor flows to Singapore as signs point to a stronger third quarter for the industry.

Visitor arrivals to Singapore increased about 4 per cent in July, taking the total tally of visitors for the first seven months to 11.13 million. This is up 1.8 per cent from the corresponding period last year.

Tourism players say the fillip is likely from the peak travel season as well as the diversion of travellers from Hong Kong. Anecdotally, a number of hotels were said to be trading at close to full occupancy over the past two months.

In July, the average occupancy rate rose to 93.8 per cent, while the average room rate was about S$217. At nearly S$204, revenue per available room (RevPAR) was up from S$200 a year ago. RevPAR last surpassed S$204 for the month of July in 2014 when it climbed to S$207.

In particular, mid-tier hotels appear to have benefited the most versus the other hotel categories in July this year. The average occupancy for mid-tier hotels rose 2.7 percentage points to 96.1 per cent, while room rates edged up 3.3 per cent to nearly S$174. RevPAR jumped 6.3 per cent to around S$167.

For the MICE segment, even years generally tend to have a stronger calendar than odd years since some events are biennial, such as the Singapore Airshow. But some hotels say that they have received a slight bump in business from companies shifting meetings here in recent months as the protests in Hong Kong intensified. The organisers of the annual Global Wellness Summit also announced in August that it would hold this year's edition in Singapore after a last-minute decision to pull out of Hong Kong.

Preliminary estimates for visitor arrivals and hotel operating figures for August have yet to be released by the Singapore Tourism Board, but analysts will likely be keeping a close watch to ascertain if July's uptick was sustained.

Amid reports that Hong Kong is formally withdrawing the extradition bill that led to months of protests, it remains to be seen how the situation in Hong Kong pans out. If the protests continue, wary corporate and leisure visitors could increasingly turn from Hong Kong to other Asian markets such as Singapore, Thailand, Taiwan, Japan and Korea, analysts say. Mainland Chinese travellers could also choose to eschew Hong Kong in favour of other destinations, and one key upcoming event is China's Golden Week, a week-long national holiday in early October.

"Supported by a lack of supply in Singapore, hoteliers will benefit as demand for rooms picks up, leading to higher occupancy and room rates, driving up RevPAR in the coming quarters," said DBS Group Research analyst Derek Tan in a Sept 2 note, pointing to Far East Hospitality Trust, CDL Hospitality Trusts and OUE Hospitality Trust as likely beneficiaries for their hotel footprint in Singapore. "This will drive distributions and in turn share prices."

The expected bump in the inflow of visitors is aided by the easing supply of new hotel rooms this year. Industry data puts incoming room supply at 1.3 per cent annually from end-2018 to end-2022, down from a compound annual growth rate of 5.5 per cent over 2014-2017. This year, new hotel room supply is expected to grow by 2.5 per cent or 1,703 new rooms.

Other potential candidates that could see cash registers ringing from stronger visitor arrivals include integrated resort owner Genting Singapore, seafood chain Jumbo - renowned for its chilli crab - and Singapore Flyer operator Straco Corp, analysts reckon.

Still, one downside risk to the rosier picture for the tourism industry would be a slowdown in the global economy, which could prompt corporates and tourists to cut back on travel. In particular, China, which faces easing GDP growth as US tariffs bite, is Singapore's biggest source of visitors.