Stronger visitor arrivals to galvanize Singapore hospitality sector in 2014

Business travellers should come in droves.

Singapore hoteliers can look forward to a more prosperous 2014 with visitor arrivals seen to spike this year, driven especially by higher volumes of business travellers, according to DBS.

Upscale and mid-tier hotels in particular should see the highest rebound in RevPAR for the year after lagging in 2013.

Here's the full hospitality sector analysis from DBS:

Singapore’s visitor arrivals nearing the 17m target. What seemed impossible a decade ago is close to becoming a reality. The Singapore Tourism Board (STB) has set a target of 16.3m - 16.8m visitor arrivals for 2014, representing a growth rate of 5 - 8% on a y-o-y basis. STB also expects visitor spending to grow modestly this year, with total tourist expenditure of S$23.8bn - S$24.6bn (which represents a growth of c.0.5% to 4.0% on a y-o-y basis).

The projection by STB is in line with our expectations that we highlighted in our previous outlook report issued in Dec’13 “Singapore Hospitality – Modest Recovery”. We believe that 2014 will be a better year for hoteliers, with stronger expected visitor arrivals to be driven by higher volumes of business travellers in 2014. This is on the back of a robust line-up of MICE events planned throughout the year. In addition, the opening of the sports hub in Jun'14 will also add an additional dimension to Singapore’s product offering to visitors.

Ample supply to limit significant upside to RevPAR. With higher business volumes, we expect hoteliers to report better results in 2014, with the Upscale/Mid-Tier hotels delivering the strongest rebound in RevPAR (c.3-4%) after a dreadful 2013, where RevPAR declined by >10% due to weak business travel demand. A key limiting factor to a more bullish forecast for RevPAR growth is the completion of close to an estimated 3,000 new rooms (c.5% growth in supply), where we will see major hotel chains opening in the CBD (Sofitel So Singapore, 134 rooms; and Holiday Inn Express Clarke Quay, 442 rooms) and Orchard Road (Hotel Grand Central, 990 rooms; and Traders Hotel, 502 rooms).

Hoteliers’ valuations attractive. The listed Hotel REITs are trading at an average 0.9x P/Bk NAV, offering yields of between 7.5% and 7.8%. Among the hoteliers, we remain most optimistic on CDL Hospitality Trust ( BUY, TP S$1.84 ) to deliver the strongest growth in RevPAR among peers, leveraging on the projected rebound in business travel in 2014.