Hotels, services a solid bet in short, medium terms

Tourism rebound lifts most hotel stocks though some three- and four-stars struggle amid intensifying competition

A rebound in the domestic tourism industry and terrorist threats and unrest in some neighbouring countries have helped boost the local hospitality business. Leading listed hotels showed strong performances, providing investors with an attractive punt.

During the past year, tourism showed a strong rebound, with 7% growth in arrivals over 2001. Sporadic bombings and unrest in Indonesia and the Philippines meant a windfall for the Land of Smiles, as most travellers to this part of the world adjusted their holiday plans and chose Thailand as one of their top destinations instead.

With consolidated market capitalisation of 25.07 billion baht as of the end of last year, the hotel and travel services sector yielded a total shareholder return (TSR) of 32.24% for one-year investments last year, which slid to 15.49% for holdings during the three-year period. During the past five years, the sector realised TSR of 19.98% but for those who invested for 10 years, their gains came in at a mere 0.04%.

Among the listed hotel companies, Royal Garden Resort Plc (RGR) is the best performer, with total shareholder return of 85.27% on a one-year basis. With a market capitalisation of 1.51 billion baht, RGR stock gave a TSR which more than doubled the hotel sector's one-year average of 32.24%.

RGR's yields, however, dropped sharply to 16.71% for an investment of during the three-year period but regained 20.67% in five-year returns. Its 10-year TSR declined even further to 7.04%.

Kavee Chukitkasem, assistant manager of Capital Nomura Securities, said RGR posted robust performance both in its financial statement and in the stock market because its properties spanned the country, covering many strategic tourist hot spots.

RGR chairman Bill Heinecke said the group was trying to offer services at all top tourist destinations and was now building a hotel in Ko Samui, further broadening its portfolio.

The second-best performer last year went to The Oriental Hotel (Thailand) Plc (OHTL). Capitalised at 4.64 billion baht, OHTL provided 83.33% on one-year TSR. OHTL's shareholder returns for investments of three and five years were also a healthy 26.48% and 21.33% respectively. For a period of 10 years, the stock yielded 11.55%.

Mr Kavee said the five-star riverside hotel provided high returns thanks to its world-class reputation and unique services. OHTL had built up its reputation for decades, as reflected by several awards worldwide and the number of its loyal customers.

Although the stock had low liquidity, its high profit margin helped lift its price, Mr Kavee said.

``The hotel industry is very competitive. If a property does not carry a worldwide brand name, it had better get one, like the Central group did when it brought in the Sofitel brand or build a reputation the way The Oriental did,'' he said.

Other stocks that also provided positive returns last year were Laguna Resorts & Hotels Plc (59.63%), Dusit Thani Plc (54.74%), Central Plaza Hotel Plc (46.62%), Royal Orchid Hotel (Thailand) Plc (25.32%) and The Mandarin Hotel Plc (22.04%).

Mr Kavee said that local brand hotels like the Dusit Group were now struggling, as many new five-star international hotels were springing up in Bangkok.

For three-year investments, Mandarin Hotel achieved the best performance, with 60.52% TSR, followed by LRH, at 48.20%.

Notably, OHTL, Royal Orchid Hotel and RGR are the only three players whose TSRs have never been negative for investments over one-, three-, five- and 10-year periods.

Last year's worst performer in terms of shareholder return was Rajadamri Hotel Plc (RHC), operator of the Regent Bangkok.

Capitalised at 1.34 billion baht, RHC provided one-year yields of -22.57%. For three-year TSR, the loss fell to -12.42%. But five-year returns fared much better, giving investors 21.34% yields. For a longer holding of 10 years, returns came in at a poor -0.35%.

Phornphan Padmasankha, RHC's corporate secretary, said the stock performance did not reflect the company's actual performance, which included a 209 million baht in net profit last year.

``Our shares touched a peak for a very brief period when we announced [a] dividend payment last year. It then declined when investors started to take profits. But this doesn't mean our company isn't doing well,'' said Ms Phornphan.

She added that hotel stocks generally did not show capital gains over a short period but benefitted investors in the long run.

This year, RHC will embark on a substantial investment that is expected to further lift its performance.

Other players in the sector that produced negative returns during the past year were Shangri-La Hotel (SHANG), at -6.34%, and Phuket Yacht Club operator Pacific Assets Plc (PA), at -1.2%.

SHANG, however, gave positive TSRs of 8.06% and 13.58% for investments of three and five years. But the stock's TSR slipped back to the negative territory, at -1.12% on a 10-year basis.

While PA's three-year TSR stood at -14.12%, for investments of five years, the stock gave the highest return of 43.92%, outpacing the sector's average of 19.98%. Its gains during the 10-year period, however, slipped into the red at -9.87%.

Mr Kavee acknowledged that this year the hotel industry was unlikely to grow as strongly as it did last year since the market had swung back after plunging to a low following the terrorist attacks on Sept 11, 2001.

But the sector should still have potential, particularly those five-star hotels with international brand names. Three-star and four-star hotels might have to struggle to survive, as a glut was now seen in the segment, he said.

_ Nondhanada Intarakomalyasut

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