To The Moon

Below is a recap of our webinar, “Can Singapore Tourism Stocks Shine in 2024?”

Please click here to watch the full webinar replay on Tiger Brokers App.

Content:

• Singapore’s Tourism Industry

• Singapore's International Visitor Arrivals

• Top 5 Countries by Arrival – 2023 vs 2019

• Singapore’s Hotel Industry

• SIA’s Operating Leverage

• SIA’s RASK and PLF

• SIA’s Technical Analysis

• Far East HTrust’s Hotels RevPar

• Far East HTrust’s Fixed vs Variable Rent

• Far East HTrust’s Technical Analysis

• Genting Singapore’s Earnings

• Genting Singapore’s Impairment

• RWS’s Expansion Plans

• Genting Singapore’s Technical Analysis

• Conclusion

• In addition to MICE events, sporting events, and concerts play a crucial role in revitalizing Singapore's tourism sector.

• While the F1 event may have experienced lower turnout last year, there were more than 28 MICE events organized around the F1 period.

• It is estimated Taylor Swift’s concerts may boost Singapore Economy by $500 million.

• According to the Singapore Tourism Board, 2024 international visitor arrivals are expected to reach around 15 to 16 million. However, I believe this estimate may be conservative, as Chinese tourists could potentially provide an upside surprise.

• Singapore's international visitor arrivals have the potential to resume the 6% compound annual growth rate (CAGR) trajectory observed from 2009 to 2019.

• The top five countries by arrival to Singapore are Indonesia, China, Malaysia, Australia, and India.

• Historically, Chinese tourists have accounted for the majority of international visitor arrivals, followed by Indonesia and India.

• Currently, tourist numbers from Indonesia and India are still 25 to 26% lower than the 2019 level, while Chinese tourist numbers are 62% lower.

• Singapore’s hotel industry recorded a lower average occupancy rate in 2023 compared to 2019. However, the average room rate in 2023 was 27% higher than in 2019. Additionally, Revenue Per Available Room (RevPAR) increased by 17.68% to $225.8.

• This suggests that, despite the lower occupancy rate, hotel owners are still generating more revenue by charging higher room rates.

• Moving forward, RevPAR may remain elevated, especially with the implementation of the Singapore-China visa-free travel agreement.

• The primary reason for Singapore Airlines’( $SINGAPORE AIRLINES LTD(C6L.SI)$ ) higher earnings compared to the 2019 pre-COVID level is operating leverage.

• However, SIA has dropped 13% since the earnings announcement due to earnings falling short of analysts' expectations.

• Revenue Per Available Seat-Kilometre and passenger load factor are currently still above pre-COVID levels. However, the passenger yield for SIA and Scoot declined by 5% and 15% YoY in the latest quarter.

• The combination of a lower passenger yield, decreasing cargo yield, and rising operating costs suggests a dim outlook for SIA's earnings.

• The investment thesis for SIA is quite simple: It depends on whether investors believe that Chinese tourists will flock back to Singapore, as SIA should benefit.

• I am mid-term constructive on SIA, given some early signs of Chinese tourists traveling to Singapore.

• News media reports indicate an uptick in Chinese tourists, with bookings to Singapore, Thailand, and Malaysia combined jumping more than 30% during the Lunar New Year period, according to Trip.com.

• Additionally, Cirium reports that flights from China to Malaysia, Singapore, and Thailand are expected to increase by 87% from March to June compared to the same period a year earlier

If SIA's share price continues to fall, watch for support levels at SGD6.44, SGD6.01, and SGD5.71.

• Looking ahead, we anticipate more variable rent growth in Far East Hospitality Trust ( $Far East HTrust(Q5T.SI)$ ) as all room inventory should have been released into the market.

• Some hotels were under government quarantine contracts early last year, operating on fixed rent. Additionally, there were some Asset Enhancement Initiatives (AEI) last year, and the hotel is not currently operating at full room capacity.

• The Hotel’s Revenue Per Available Room (RevPAR) has seen a remarkable 47% year-on-year growth, reaching $136. The current RevPAR is now just 4% lower than the 2019 level.

• Additionally, the management is actively exploring overseas expansion, particularly in developed countries, with a specific focus on Japan.

• The ultimate goal is to achieve a balanced mix of 80:20 between properties in Singapore and overseas over the longer term

The company's share price often finds strong support at the 50% Fibonacci retracement level at SGD0.565, representing a 6% decrease from the current price of 0.605.

• Genting Singapore’s ( $Genting Sing(G13.SI)$ ) revenue has now reached 97% of the 2019 level, while operating income stands at 80% of the pre-COVID level.

• The gross profit margin and operating margin in 2023 were 5 percentage points lower than in 2019.

• The main reason for the 13% drop in the share price since the earnings release is the unexpected increase in impairments, which weighed on the company's fourth-quarter earnings.

• While the provision for doubtful debt increased significantly by 318%, from SGD30 million in 2022 to SGD124 million in 2023, which may appear as a negative surprise, investors should consider this in conjunction with gaming revenue.

• I believe the correct perspective is that the management took on a certain level of risk to boost gaming revenue. This risk, reflected in the provision for doubtful debt, contributed to a 34% YoY increase in gaming revenue in 2023, reaching SGD1.65 billion, surpassing even 2019's figure of SGD1.62 billion.

• However, I don't view this too negatively for several reasons:

1. Firstly, the management has stated that they don't anticipate the impairment for this trade receivable to be as significant going forward.

2. Secondly, it constitutes only 7.5% of the gaming revenue.

3. Thirdly, Genting SP has a history of declaring lower provisions for doubtful debt after a spike. For instance, in 2016, doubtful debt was SGD235 million, followed by figures in the fifty-million range in the subsequent two years.

• Genting Singapore will face intense competition  in gaming revenue in the future. Thailand is considering opening of casino resorts and Osaka, Japan, is set to open a casino by 2030.

• The company plans to invest more in the revamp and upgrade of the casino resort and theme park, allocating a total of $6.8 billion as part of the Resorts World 2.0 program.

• As RWS's expansion plan is progressively completed, non-gaming revenue is expected to contribute more significantly to the operating profit.

• However, most of the development will come live in 2025 and beyond and hence Genting Singapore may lack upside catalyst in 2024.

Technical analysis suggests that Genting Singapore may see strong support at 0.78.

• SIA has provided only 0.3% and 1.6% in 5-year and 10-year annualized returns, underperforming Far East Hospitality Trust and the STI Index.

• The outperformance of the STI index can be attributed to the stellar performance of local bank stocks. These banks, constituting 47% of the STI index weight, have been among the best-performing stocks in the past 10 years.

• However, I believe a pure Singapore portfolio shouldn't solely consist of 100% bank stocks. Hence, diversification is crucial, and tourism stocks could serve as a viable alternative to banking stocks.

• For a pure Singapore stock portfolio, allocating 10%-15% to tourism stocks may be a suitable strategy.