China / Hong Kong Industry Focus

Hong Kong Hotel Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 15 Jan 2018

Nice Recovery
HSI : 31,412
 Inbound tourism gathered pace

 Favourable hotel sector outlook

A N ALYST
 Prefer Far East Consortium (35.HK) and Langham Jeff YAU CFA, +852 2820 4912
Hospitality Investments (1270.HK) jeff_yau@dbs.com
Ian CHUI +852 2971 1915
ianchui@dbs.com
Inbound tourism recovery gathered pace towards end-2017; as Jas on LAM +852 2971 1773
jas onlamch@dbs.com
the growth of overnight visitors from China accelerated. Aided
by the return of overnight visitors, the hotel market continued
to recover. Overall hotel occupancy rose 2ppts y -o-y to 89% in
11M17. Medium tariff hotels (equivalent to three-star rating)
continued to outperform other High tariff hotels with Recommendation & valuation
occupancy up 5ppts to 91% in 11M17. The overall room rate
T arget
resumed on a growth trend since Aug-17 with signs of
Company Pric e Pric e M k t Cap Rec om
improving momentum. This, coupled with occupancy gains,
should support RevPAR recovery.
HK $ HK $ HK $m
F av ourable hotel sector outlook. The Express Rail Link and F ar East Consortium
4.66 5.46 10,668 BUY
Hong Kong/Zhuhai/Macau Bridge are expected to come into (35 HK)
serv ice in 2018. These new infrastructure projects should Langham Hospitality
3.58 3.78 7,477 BUY
enhance the transportation connectivity between Hong Kong (1270 HK)
and Southern China, and in turn change the travel patterns
among Mainland tourists. Coupled with new tourist attractions
such as the new Water World at Ocean Park, these should
Source: Thomson Reuters, DBS Vickers, Bloomberg Finance L.P.
underpin inbound tourism growth. We forecast the number of
total visitor arrivals to grow at 4-year CAGR of c.4% during
2017-2021 led by China visitors. On the other hand, we
project similar growth for hotel room supply in the same
period. This suggests the current high occupancy rate should
sustain in the years ahead. Moreover, the increasing valuations
of commercial properties are prompting more redevelopment
of well-located three to four star rated hotels into office or
retail space. This should moderate net growth of hotel supply
and add momentum to RevPAR improvement.

Pref er Far East Consortium and Langham Hospitality

Inv estments. We like Far East Consortium for its strong
exposure to three and four-star hotel markets which are
staging nice recovery. Langham Hospitality Investments is also
rated a BUY. The Langham and Cordis hotels continue to
outperform other five star-rated hotels with modest RevPAR
growth. Renovation at Eaton should enable the hotelier to
better satisfy the needs of modern travellers.

ed- JS/ sa-CS / AH

Industry Focus
Hong Kong Hotel Sector

Tourism recovery well underway. Inbound tourism in Hong Visitor arrivals growth – overnight visitors
Kong continued its recovery path in 2H17. In 11M17, total
number of visitor arrivals grew 3.1% to 52.9m. This was mainly
Yoy, % Nov-17: 8.5% y -o-y
led by the return of overnight visitors. Overnight visitors
60 11M17: 5.0% y-o-y
numbered 25.2m during the same period, up 5% y -o-y , and
made up 47.7% of total visitor arrivals. 50
40
Number of overnight visitors from China grew by larger 6.4% 30
in 11M17, which compared favourably with the corresponding
20
growth of 1.6% for day -trippers. Overall, there were 40.2m
10
China visitors during the same period, up 3.6% y -o-y, reversing
0
the downtrend in 2015 and 2016.
(10)
Visitor arrivals growth – overall (20)
(30)

Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17
Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16

Jan/17
Yoy, %
Nov-17: 7% y -o-y
50 11M17: 3.1% y -o-y
40
Source: HK Tourism Board, CEIC
30
20
10
0
(10)
Visitor arrivals growth – overnight visitors from China
(20)
(30) Yoy , %
Nov -17: 12.6% y -o-y
Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17
Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16

Jan/17

70 11M17: 6.4% y -o-y

60
Source: HK Tourism Board, CEIC 50
40
30
20
10
0
(10)
(20)
(30)
Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17
Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16

Jan/17

Source: HK Tourism Board, CEIC

Page 2
 Industry Focus
Hong Kong Hotel Sector

Visitor arrivals growth – China With new tourist attractions such as Water World at Ocean Park
and infrastructure projects including Express Rail Link coming
Yoy , % onstream, we estimate total number of visitor arrivals will grow
Nov -17: 8.6% y -o-y
at a 4-year CAGR of 4% between 2017-21, with similar growth
60 11M17: 3.6% y -o-y
in both overnight and day -trippers. Mainland China should
50
continue to lead the growth. For 2018, we forecast tourist
40
arrivals to grow 3.9% with overnight and same-day travellers
30
expected to post 4.1% and 3.9% respectively.
20
10
New hotels in focus. In 3Q17, two new hotels opened for
0
business. They were Penta Hong Kong, Tuen Mun and We Hotel
(10) in Sai Ying Pun. Converted from Luks Industrial Building near the
(20) Tuen Mun West Rail Station, Penta Hong Kong is a Medium
(30) Tariff hotel with 298 guest rooms and is managed by Penta
(40) Management. We Hotel is a small hotel with only 48 rooms. As
Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jul/13

Jul/14

Jul/15

Jul/16

Jul/17
Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Jan/13

Jan/14

Jan/15

Jan/16

Jan/17

of Sep-17, there were 273 hotels in Hong Kong, with a total

number of rooms of 78,056, up 4.9% from Dec-16.

Source: HK Tourism Board, CEIC Penta Hotel

The number of overnight visitors from short haul markets rose

3.8% to 5.4m in 11M17. Among these short haul markets,
J apan, South Korea and the Philippines posted stronger-than-
av erage yearly growth of 19.4%, 9.1% and 13.6%
respectively, in overnight visitor arrivals. On the other hand, the
number of overnight visitors from long haul markets such as
the US and Europe stayed largely flat in 11M17.

Visitor arrivals growth – short haul market*

Yoy, %
Nov -17 2.2% y -o-y
25 11M17 3.8% y -o-y
20
15
10
5
0
(5)
(10)
(15)
Source: DBS Vickers
(20)
(25)
Sep/12

Sep/13

Sep/14

Sep/15

Sep/16

Sep/17
Mar/13

Mar/14

Mar/15

Mar/16

Mar/17

In Central, The Murray , Hong Kong, a Niccolo hotel opened for

business recently in J an18. Converted from the iconic ex-
government building, Murray Building, this new luxury hotel
offers 336 guest rooms with five restaurants and bars. It will be
Source: HK Tourism Board, CEIC
*Short haul markets include Japan, S. Korea, S. & SE As ia, Taiwan, the flagship hotel under the “Niccolo” brand which has been
Macau expanding rapidly in China.

Page 3
Industry Focus
Hong Kong Hotel Sector
The Murray, Hong Kong, a Niccolo hotel
Source: DBS Vickers
Other major hotels that will open for business in 2018 include
Rosewood Hong Kong in Tsim Sha Tsui, Hotel V ic in North
Point, and Ocean Park Marriott Hotel. Rosewood Hong Kong is
part of V ictoria Dockside, a 3msf mixed-use development
owned by New World Development on the Tsim Sha Tsui
waterfront. Targeted for opening in mid-2018, this luxury hotel
will provide 398 guest rooms and be the first in Hong Kong to
operate under the luxury “Rosewood” brand. We believe
Rosewood Hong Kong could produce synergies with office and
retail portions of V ictoria Dockside.
Rosewood Hong Kong
Source: DBS Vickers
Following an estimated growth of 5.4% in 2017, we forecast
the supply of hotel rooms will increase at a 4-year CAGR of
4.1% from 2018 to 2021, broadly in line with our projected
growth of overnight visitors in the same period. This leads to
our forecast that overall hotel occupancy will stay high at 88-
91% in 2018-21. In addition, a growing number of
strategically located three and four-star rated hotels, especially
on Hong Kong Island, is expected to be redeveloped into office
properties. Office prices have been surging rapidly. According
to J ones Lang LaSalle, the overall office price appreciated
>17% in the first eleven months of 2017. Against this
backdrop, property values could be substantially enhanced if
converted or redeveloped into office use from hotel. Recently,
Town Planning Board approved the redevelopment of the 263-
room Crown Plaza Hong Kong Causeway Bay into a
commercial property with GFA of 160,900sf. Potential
redevelopment of existing hotels into office or commercial use
could moderate the net growth of hotel room supply which in
turn has a positive implication on occupancy and RevPAR
growth.
Page 4
 Industry Focus
Hong Kong Hotel Sector

Occupancy continued its uptrend. Aided by a return of Hotel occupancy – High tariff A
ov ernight visitors, the Hong Kong hotel industry has been
witnessing a gradual recovery. The overall occupancy stood at
89% in 11M17, up 2ppts y -o-y. Among different categories of (%)
hotels, Medium tariff hotels (three star-rated equivalent) 95
recorded the strongest occupancy gains. In 11M17, occupancy
of Medium tariff hotels rose 5ppts to 91%. During the same 90
period, occupancy rates of High tariff A hotels (five star-rated
equivalent) and High tariff B hotels (four star-rated equivalent)
reached 86% and 90%, up 2ppts and 1ppt respectively. 85

80
Hotel occupancy – overall
75
(%)
100 70

Sep
May
Jan

Mar

Aug
Apr

Nov
Feb

Jun

Dec
Oct
Jul
95
2016 2017
90
Source: HK Tourism Board, CEIC
85

80

75 Hotel occupancy – High tariff B

70
(%)
Sep
May
Jan

Mar
Feb

Aug

Nov
Apr

Jun

Oct

Dec
Jul

100
2016 2017
95
Source: HK Tourism Board, CEIC
90

85

80

75

70
Sep
May
Jan

Mar

Aug
Apr

Nov
Feb

Jun

Dec
Oct
Jul

2016 2017

Source: HK Tourism Board, CEIC

Page 5
Industry Focus
Hong Kong Hotel Sector

Hotel occupancy – Medium tariff Room rate – all hotels

(%) (HK$/night)
100 1600

95 1500

90 1400

85 1300

80 1200

75 1100

70 1000
Sep
May
Jan

Mar

Sep
Aug

May
Apr

Nov

Jan
Feb

Mar

Aug

Nov
Apr
Feb
Jun

Dec
Oct
Jul

Jun

Dec
Oct
Jul
2016 2017 2016 2017

Source: HK Tourism Board, CEIC Source: HK Tourism Board, CEIC

Overall room rate has resumed positive growth.
Compared to occupancy, the improvement in room rates
lagged behind. The overall room rate fell marginally by 0.3% y -
o-y in 11M17. Nonetheless, the rate recovery has exhibited
improving signs with modest growth of 0.8-4.2% since Aug-
17. Room rates of Medium tariff hotels posted respectable
growth of 9% in 11M17, while room rate for High tariff B
hotels grew a modest 2.9%. On the other hand, High tariff A
hotels continued to experience rate pressure. Room rate
dropped 4.8% in 11M17 but the yearly decline has narrowed
in recent months.
Medium tariff hotels stand out. On the back of improved
occupancy and room rate, RevPAR of medium tariff hotels
recorded 15.3% growth in 11M17. Coupled with positive
operating leverage, gross operating profit could grow by
>20% in 2017. RevPAR of High tariff B hotels grew a steady
4.1% in 11M17 but those for High tariff A hotels were 2.5%
lower. Overall, hotel RevPAR went up 2% in 11M17. With the
overall occupancy expected to stay high, we forecast the
RevPAR to be 3-5% higher in 2018.
RevPAR (11M17)

(%)
20

10

-10
High Tariff A High Tariff B Med Tariff

Source: HK Tourism Board, CEIC

Page 6
 Industry Focus
Hong Kong Hotel Sector

SHKP expanding its hotel footprint. In Oct-17, Sun Hung
Kai Properties (SHKP) defeated nine other developers to secure
a hotel site on the Cheung Sha Wan waterfront through
gov ernment tender for HK$5.06bn or HK$13,500psf. The
winning bid was well above the market estimate and similar to
the price Harbour Centre Development paid for the site where
The Murray, Hong Kong a Niccolo hotel is in Central for hotel
dev elopment in 2013. This reflected SHKP’s strong
determination to win the tender. We expect this hotel
dev elopment to offer 500 guest rooms with GFA of 374,200sf.
Total investment cost is estimated at HK$8bn which translates
into HK$16m per room.
Stock recommendations. We like Far East Consortium for its
strong exposure to three and four-star hotel markets which are
staging a nice recovery. We also recommend a BUY on
Langham Hospitality Investments. The Langham and Cordis
hotels continue to outperform other five star rated hotels with
modest RevPAR growth. Renovation at Eaton should enable
the hotelier to better satisfy the needs of modern travellers.
URA’s Peel Street/ Graham Street Hotel site

New boutique hotel in Central. A consortium comprising

Wing Tai Properties (65%) and CSI Properties (35%) was
awarded the rights to redevelop Site C of Urban Renewal
Authority’s (URA) Peel Street/Graham Street project. This
redevelopment will contain a hotel in addition to office and
retail facilities. This boutique hotel will offer 180-200 guest
rooms with F&B facilities when completed in 2022/23. Its key
attraction lies in its superb location. It is strategically located in
Central, and just 5-minute walk from Central, Hong Kong and
Sheung Wan MTR Station. Hotel guests have easy access to the
hotel via the Central-Mid-levels escalator nearby. In addition, it
is in close proximity to Lan Kwai Fong, a renowned tourist spot.
These factors should make the hotel attractive to both of
business and leisure travellers.

Source: DBS Vickers

Page 7
HK Hotel Sector / Industry Focus
Far East Consortium
Bloomberg: 35 HK | Reuters: 0035.HK Refer to important disclosures at the end of this report

Multiple growth drivers

BUY
L ast Traded Price ( 12 Jan 2018): HK$4.66 (HSI : 31,412)
Pric e Target 12-mth: HK$5.46 (17% upside) (Prev HK$5.20)
 Improving hotel earnings stream
Po tential Catalyst: Project s ales and hotel sector recovery  S trong pre-sale value points to high earnings visibility
Wh ere we differ: Market has s lightly higher earnings estimate for FY18.
 BUY with HK$5.46 TP
Analyst
Jeff YAU CFA, +852 2820 4912 Improving hotel earnings stream. Driven by recovering inbound
jeff_yau@dbs.com tourism led by the return of overnight visitors, the Hong Kong hotel
Ian CHUI +852 2971 1915 operations witnessed RevPAR growth of 8.3% from both higher
ianchui@dbs.com
Jas on LAM +852 2971 1773 occupancy and room rates in 1HFY18. Opened for business in Feb-17,
jas onlamch@dbs.com Dorsett Tsuen Wan adds further momentum to Far East Consortium
(FEC)’s hotel earnings recovery. In 1HFY18, RevPAR of China hotels
was >16% higher, with Dorsett Shanghai and Dorsett Grand Chengdu
Price Relative
faring better. Dorsett City London commenced operations in Aug-17,
thus expanding its hotel portfolio in UK. Overall, hotel earnings
recovery is set to continue in the year ahead. FEC acquired a portfolio
of six car parks (c.1400 bays) in Budapest, Hungary with initial cash
yield of >8% in Oct-17. This should contribute to growing earnings
contributions from carpark and facilities management.
Strong pre-sale value points to high earnings visibility. Launches
of West Side Place (Tower 4) in Melbourne and The Star Residences in
Forecasts and Valuation
FY Mar (HK$ m) 2016A 2017A 2018F 2019F Gold Coast were greeted with satisfactory initial response, with over
Turnover 3,995 5,005 4,604 6,041 60% of their units being already pre-sold. Elsewhere, FEC has sold
EBITDA 1,335 1,694 2,207 2,075 c.190 units, at Artra in Singapore for S$1,650psf, representing >45%
Pre -tax Profit 979 1,576 2,043 1,409
Underlying Profit 734 1,127 1,528 1,013 of total. This provides good visibility of future development earnings. In
EPS (HK$) 0.37 0.52 0.67 0.45 Oct-17, FEC launched Meadowside in Manchester for pre-sale.
EPS Gth (%) (28.4) 41.9 30.0 (33.7) Meadowside will contain >750 apartments in four towers with saleable
PE (X) 12.8 9.0 6.9 10.4
P/Cas h Flow (X) (63.0) 8.6 61.0 13.8 floor area of c.554,000sf. The first two towers (284 units) was put
EV/EBITDA (X) 12.9 10.2 7.8 8.3 onto the market with c.100 units being sold. Construction works will
DPS (HK$) 0.16 0.19 0.20 0.20 begin in 2018 with project completion targeted for late 2020.
Div Yield (%) 3.4 4.0 4.2 4.2
Net Gearing (%) 38 31 35 37 BUY with HK$5.46 TP. The stock, trading at 64% discount to our
ROE (%) 7.6 10.8 13.5 8.3 assessed current NAV , remains inexpensive. Hotel earnings has been
Es t. NAV (HK$) 12.9 13.7
recovering, which, coupled with steadily expanding carpark operations,
Dis c. to NAV (%) (64) (66)
should drive recurring earnings growth leading to better earnings
Earnings Rev (%): 0 0 1 quality. Any repeat of its success in Melbourne in other overseas
Cons ensus EPS (HK$): 0.64 0.71 markets would justify higher stock valuation. BUY with HK$ 5.46 TP,
Other Broker Recs: B: 5 S: 0 H: 0
based on a 60% discount to our Dec-2018 NAV estimate.
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development At A Glance
Principal Business: Engages in property development & investment, Is s ued Capital (m shrs) 2,240
hotel investment & operations, and car park and facility mangement Mkt. Cap (HK$m/US$m) 10,440 / 1,335
operations across different cities
Major Shareholders
Source of all data on this page: Company, DBSV, Thomson Reuters,
Chiu David & his family (%) 54.6
HKEX
Value Partners (%) 5.0
Free Float (%) 45.4
3m Avg. Daily Val. (US$m) 1.0

ed- JS/ sa-CS / AH

 HK Hotel Sector / Industry Focus
Far East Consortium
I n co me Statement (H K$ m) B a lance Sheet (HK$ m)
F Y M ar 2016A 2017A 2018F 2019F F Y M ar 2016A 2017A 2018F 2019F
Turnover 3,995 5,005 4,604 6,041 Fixed Assets 11,025 10,483 10,792 10,857
EB I TDA 1,335 1,694 2,207 2,075 Other LT Assets 1,435 2,135 2,170 2,205
Depr / Amort (316) (324) (362) (396) Cash & ST I nvts 2,556 4,186 3,430 3,102
E BIT 1 , 0 19 1 , 3 70 1 , 8 45 1 , 6 78 Other Current Assets 11,145 11,596 14,180 16,038
Associates I nc 1 (4) (5) (5) T o t al Assets 2 6 , 16 1 2 8 , 40 0 3 0 , 57 1 3 2 , 20 2
I nterest (Exp)/I nc (222) (158) (284) (264) ST Debt 2,933 2,755 2,755 2,755
Exceptionals 181 368 486 0 Creditors 829 889 1,189 1,489
Pr e - tax Profi t 979 1 , 5 76 2 , 0 43 1 , 4 09 Other Current Liab 2,710 2,536 2,786 3,036
Tax (221) (434) (500) (382) LT Debt 8,732 10,507 11,007 11,507
M inority I nterest (24) (15) (15) (15) Other LT Liabilities 691 768 768 768
N e t Pr ofit 734 1 , 1 27 1 , 5 28 1 , 0 13 M inority I nterests 127 152 162 172
Shareholder’s Equity 10,140 10,792 11,903 12,473
T o t al Cap. & Liab. 2 6 , 16 1 2 8 , 40 0 3 0 , 57 1 3 2 , 20 2
Sales Gth (%) (22) 25 (8) 31 Share Capital (m) 2,132 2,238 2,238 2,238
Net Prof it Gth (%) (23) 53 36 (34) Net Cash/(Debt) (7,923) (7,646) (8,902) (9,730)
EB I TDA M argins (%) 33 34 48 34 Working Capital 7,230 9,601 10,879 11,859
EB I T M argin (%) 26 27 40 28 Net Gearing (%) 38 31 35 37
Tax R ate (%) 23 28 24 27

C a s h F low Statement (H K$ m) S e gmental Breakd own (HK$ m) / Key Assump tions

F Y M ar 2016A 2017A 2018F 2019F F Y M ar 2016A 2017A 2018F 2019F
EB I T 1,019 1,370 1,845 1,678 R e venues (HK$ m)
Tax Paid (372) (275) (500) (382) Property Development 1,979 2,937 2,283 3,616
Depr/Amort 316 324 362 396 Property I nvestment 51 55 59 60
Chg in Wkg.Cap (1,502) (556) (2,035) (1,308) Hotel Operations 1,321 1,309 1,484 1,532
Other Non-Cash 18 38 1 1 Car Park Operations 623 641 711 766
O p e rating CF ( 5 2 0) 901 ( 3 2 6) 386 Others 21 64 66 66
Net Capex (635) 80 (183) (461) T o t al 3 , 9 95 5 , 0 05 4 , 6 04 6 , 0 41
Assoc, M I , I nvsmt (333) (870) (35) (35)
I n vesting CF ( 9 6 8) ( 7 8 9) ( 2 1 8) ( 4 9 6)
Net Chg in Debt 1,942 (450) 500 500 Ke y Assumptio ns (%) 2018F 2019F
New Capital (75) 2,309 0 0 R esidential price - HK 2 2
Dividend (97) (53) (422) (447) Of f ice rental - HK 3 3
Other Financing CF (163) (363) (290) (270) R etail rental (High street shops) - HK 0 3
F i n anc ing CF 1 , 6 07 1 , 4 43 ( 2 1 2) ( 2 1 7) R etail rental (Shopping centre) - HK 3 3
Chg in Cash 118 1,555 (757) (328) Hotel R evPAR - HK 4 4

Source: Company, DBS Vickers

Page 
HK Hotel Sector / Industry Focus
Langham Hospitality Investments
Bloomberg: 1270 HK | Reuters: 1270.HK Refer to important disclosures at the end of this report

Recovery on track
BUY  Riding on the hotel market recovery
L ast Traded Price ( 12 Jan 2018): HK$3.58 (HSI : 31,412)
Pric e Target 12-mth: HK$3.78 (6% upside) (Prev : HK$3.60)  Facelift to cater to modern travellers’ needs
Po tential Catalyst: Recovery of the Hong Kong hotel s ector
Wh ere we differ: Market has s imilar DPU estimate for FY17  BUY with HK$3.78 TP

Analyst Riding on hotel market recovery. Langham Hospitality Investments is

Jeff YAU CFA, +852 2820 4912 benefitting from sustained recovery in the hotel market led by the return
jeff_yau@dbs.com of overnight visitors. We estimate combined RevPAR grew c.3-4% in
Ian CHUI +852 2971 1915 2017 mainly driven by occupancy gains. Cordis should witness c.5%
ianchui@dbs.com
Jas on LAM +852 2971 1773 RevPAR growth on the back of higher occupancy partly because of low
jas onlamch@dbs.com base arising from the protest that broke out in Feb-16. Langham should
record modest RevPAR growth of c.3% aided by improved room rate
and occupancy , and outperforming the High Tariff A hotel market.
Price Relative RevPAR of Eaton, however, should be marginally lower due to
renovation and reconfiguration of banqueting space in 2H17. Dragged
by sharply reduced contributions from Eaton due to renovation, the
overall F&B income should also fall modestly. Overall, aided by modest
RevPAR improvement, we forecast total hotel revenue to be 1% higher
with GOP growing 2% in FY17.
Facelift to cater to modern travellers’ needs. Langham Hospitality
Investments is carrying out reconfiguration and renovation of
Forecasts and Valuation banqueting space at Eaton which is scheduled to be completed in 2018.
FY Dec (HK$ m) 2016A 2017F 2018F 2019F In addition to introducing a modern design to hotel lobby, it will also
Gros s Revenue 706 709 749 780
include meeting places, a communal and co-working space, and food
Net Property Inc 594 595 629 655
Net Profit 410 376 382 391 hall to cater to the needs of modern travellers. This should enhance the
Dis tribution Inc 501 440 450 461 long-term competitiveness of the hotel despite short-term earnings
DPU (HK$) 0.26 0.22 0.21 0.22 shortfall.
DPU Gth (%) 4 (15) (1) 1
Div Yield (%) 7.1 6.0 6.0 6.1 BUY with HK$3.78 TP. Langham Hospitality Investments offers
Gros s Gearing (%) 36 35 33 32 distribution yield of 6.0-6.1% for FY17-18. V aluation is inexpensive
Book Value (HK$) 5.65 5.93 6.32 6.54
P/Book Value (x) 0.6 0.6 0.6 0.5 taking into account that the local hotel sector is well on a recovery path.
New infrastructure projects such as Express Rail Link and tourist
Earnings Rev (%): 0 1 0 attractions including Water World at Ocean Park are expected to come
Cons ensus DPU (HK$): 0.22 0.22 0.22
Other Broker Recs: B: 2 S: 1 H: 1 onstream from 2018 onwards, giving further boost to inbound tourism.
This should be positive for Langham Hospitality Investments. Maintain
ICB Industry: Financials
ICB Sector: Equity Investment Instruments BUY with DDM-based TP of HK$3.78. Any faster-than-expected interest
Principal Business: Hotels rate hikes could be a key overhang on its unit price.
Source of all data on this page: Company, DBSV, Thomson Reuters,
HKEX At A Glance
Is s ued Capital (m shrs) 2,088
Mkt. Cap (HK$m/US$m) 7,477 / 956
Major Shareholders
Lo Ka Shui (%) 64.9
Free Float (%) 35.1
3m Avg. Daily Val. (US$m) 0.4

ed- JS/ sa-CS / Ah

 HK Hotel Sector / Industry Focus
Langham Hospitality Investments

I n co me Statement (H K$ m) B a lance Sheet (HK$ m)

F Y D ec 2016A 2017F 2018F 2019F F Y D ec 2016A 2017F 2018F 2019F
Gross revenue 706 709 749 780 Fixed Assets 18,432 19,249 20,292 20,950
Property related expenses
(113) (114) (119) (125) Other LT Assets 32 32 32 32
& service f ees.
N e t Pr operty Income 594 595 629 655 Cash & ST I nvts 238 134 67 42
Other expenses (11) (11) (11) (11) Other Current Assets 121 126 131 136
I nterest (Exp)/I nc (118) (155) (176) (193) T o t al Assets 1 8 , 82 4 1 9 , 54 2 2 0 , 52 2 2 1 , 16 1
Exceptionals 28 0 0 0 ST Debt 0 0 0 6,790
Pr e -Tax Profit 493 429 442 451 Creditors 78 77 76 75
Tax (83) (54) (60) (61) Other Current Liab 33 33 33 33
Non-Controlling I nterests 0 0 0 0 LT Debt 6,739 6,756 6,773 0
N e t Pr ofit 410 376 382 391 Other LT Liabilities 297 297 297 297
D i s trib ution inc ome 501 440 450 461 Non-Controlling I nterests 0 0 0 0
Unitholders’ f unds 11,677 12,379 13,343 13,966
R evenue Gth (%) 4 0 6 4 T o t al Cap ital 1 8 , 82 4 1 9 , 54 2 2 0 , 52 2 2 1 , 16 1
NPI Gth (%) 5 0 6 4 Share Capital (m) 2,067 2,088 2,109 2,130
Dist. I nc Growth (%) 5 (12) 2 3 Gross Debt (6,800) (6,800) (6,800) (6,800)
DPU Growth (%) 4 (15) (1) 1 Working Capital 249 150 89 (6,719)
B ook NAV (HK$) 5.65 5.93 6.33 6.56
Gross Gearing (%) 36 35 33 32

C a s h F low Statement (H K$ m) S e gmental Breakd own (HK$ m) / Key Assump tions

F Y D ec 2016A 2017F 2018F 2019F F Y D ec 2016A 2017F 2018F 2019F
Pre-Tax I ncome 493 429 442 451 R e venues (HK$ m)
Tax Paid 0 (54) (60) (61) B ase rent 225 225 225 225
Depr/Amort 25 17 17 17 Variable rent 476 483 519 550
Chg in Wkg.Cap. (7) (6) (6) (6) R ental income f rom retail 6 1 5 5
Other Non-Cash 42 68 72 77 T o t al 706 709 749 780
O p e rational CF 552 454 466 478
Net Capex (65) (80) (80) (50)
Assoc, M I , I nvsmt 62 2 2 2
I n vestmen t C F ( 3) ( 78) ( 78) ( 48)
Net Chg in Debt (72) 0 0 0 Ke y Assumptio ns (%) 2018F 2019F
New issues/Unit B uyback 0 0 0 0 Hotel R evPAR - HK 4 4
Distribution Paid (483) (480) (455) (455)
Other Financing CF 0 0 0 0
F i n anc ing CF ( 5 5 5) ( 4 8 0) ( 4 5 5) ( 4 5 5)
Chg in Cash (6) (104) (68) (25)

Source: Company, DBS Vickers

Page 11
Industry Focus
Hong Kong Hotel Sector

DBSVHK recommendations are based an Absolute Total Return* Rating s ystem, defined as follows:

S TRONG BUY (>20% total return over the next 3 months, with identifiable s hare price catalysts within this time frame)

B U Y (>15% total return over the next 12 months for s mall caps, >10% for large caps)
H O LD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FU LLY VALUED (negative total return i.e. > -10% over the next 12 months)
S ELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 15 Jan 2018 08:53:32 (HKT)

Dis s emination Date: 15 Jan 2018 18:30:54 (HKT)
Sources for all charts and tables are DBS Vickers unless otherwise s pecified.
GEN ERAL DISCLOSURE/DISCLAIMER
Th is report is prepared by DBS Vickers (Hong Kong) Limited (“DBSV HK”). This report is s olely intended for the clients of DBS Bank Ltd., DBS Bank
(Hong Kong) Limited (DBS HK), DBSV HK, and DBS Vickers Securities (Singapore) Pte Ltd. ( “DBSVS”), its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated i n any form or by any means or (ii)
redistributed without the prior written consent of DBSV HK.
The res earch s et out in this report is based on information obtained from sources believed to be reliable, but we (which coll ectively refers to DBS
Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers,
employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or
s ources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research . Accordingly, we
do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions
expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document
does not have regard to the s pecific investment objectives, financial situation and the particular needs of any specific addressee. This document is
for the information of addressees only and is not to be taken in s ubstitution for the exercise of judgement by addressees, wh o s hould obtain
s eparate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss
(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communica tion given in relation
to this document. This document is not to be construed as an offer or a s olicitation of an offer to buy or s ell any s ecuritie s. The DBS Group, along
with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document.
The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or s eek to perform
broking, investment banking and other banking s ervices for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no as surance that future results or events will be consistent with any s uch valuations, opinions, esti mates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or c ompanies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
s chedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts , ratings or risk assessments described in this report were based upon a number of estimates and
as s umptions and are inherently subject to s ignificant uncertainties and contingencies. It can be expected that one or more of the es timates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will var y s ignificantly from actual
res ults. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described he rein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) s uch valuations, opinions, estimates, forecasts , ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any s u ch valuations, opinions, estimates, forecasts, ratings or risk
as s essments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any as sumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contra ct relating to the
commodity referred to in this report.
DBSVUSA, a US -registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of s ecurities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.

Page 12
 Industry Focus
Hong Kong Hotel Sector

A N ALYST CERTIFICATION
The res earch analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his /her
compensation was, is, or will be, directly or indirectly, related to s pecific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not s erve as an officer of
the is s uer or the new listing applicant (which includes in the case of a real estate investment trus t, an officer of the mana gement company of the
real estate investment trust; and in the case of any oth er entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the is suer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
res earch reports. The research analyst(s) responsible for this report operates as part of a s eparate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information h eld by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any s pecific investment ba nking function of the
DBS Group.

C O MPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their s ubsidiaries and/or other affiliates have a proprietary position in Langham Hospitality
Investment Limited (1270 HK) recommended in this report as of 1 1 Jan 2018.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this
Res earch Report.

3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their s ubsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total
is s ued s hare capital in Langham Hospitality Investment Limited (1270 HK) recommended in this report as of 11 Jan 2018.

4. DBS Bank Ltd, DBS HK, DBSVS, DBS Vickers Securities (USA) Inc ("DBSVUSA"), DBSV HK or their s ubsidiaries and/or other affilia tes
beneficially own a total of 1% of the is suer's market capitalization of Langham Hospitality Investment Limited (1270 HK) as of 11 Jan
2018.

5. C o mpensation for investment banking services:

DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their s ubsidiaries and/or other affiliates of DBSVUSA have received compensation, within the
pas t 12 months for investment banking s ervices from Far East Consortium Intern ational Limited (35 HK) as of 31 Dec 2017.

6. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their s ubsidiaries and/or other affiliates of D BSVUSA have managed or co-managed a public
offering of s ecurities for Far East Consortium International Limited (35 HK) in the past 12 months, as of 31 Dec 2017.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of s e curities
as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishin g to
obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any s ecurity
dis cussed in this document s hould contact DBSVUSA exclusively.

7. D is closure of previous investment recommendation produced:

DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment
recommendations in respect of the s ame s ecurities / instruments recommended in this research report during the preceding 12
months . Please contact the primary analyst listed in the first page of this report to view previous investment recommendations
published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1
An associate is defined as (i ) the s pouse, or any minor child (natural or adopted) or minor s tep -child, of the analys t; (ii) the trus tee of a trus t of
which the analys t, his spouse, minor child (natural or adopted) or minor s tep -child, is a beneficiary or discretionary object; or (iii ) another pers on
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interes t is defined as interes ts that are commonly known financial interes t, such as inves tment in the securities i n respect of an issuer or
a new lis ting applicant, or financial accommodation arrangement between the issuer or the new lis ting applicant and the firm or analys is. This
term does not include commercial lending conducted at arm's length, or inves tments in any collective inves tment s cheme other than an issuer or
new listing applicant notwithstanding the fact that the scheme has investm ents in s ecurities in respect of an issuer or a new listing applicant.

Page 13
Industry Focus
Hong Kong Hotel Sector

R ESTRICTIONS ON DISTRIBUTION
Ge neral This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or
located in any locality, s tate, country or other jurisdiction where s uch distribution, publication, availability or us e would be
contrary to law or regulation.
A us tralia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd
(“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.
DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001
(“CA”) in respect of financial s ervices provided to the recipients . Both DBS and DBSVS are regulated by the Monetary
Authority of Singapore under the laws of Singapore, and DBSVHK is regulated by the Securities and Futures Commission of
Hong Kong under the laws of Hong Kong, which differ from Australian laws.
Dis tribution of this report is intended only for “wholesale investors” within the meaning of the CA.

H o ng Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong)
Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the
regulated activity of advising on securities.
I ndonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
M alaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from
ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this
report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised
that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected
and as sociated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any
of them may have positions in, and may effect transactions in the s ecurities mentioned herein and may also perform or seek
to perform broking, investment banking/corporate advisory and other s ervices for the s ubject companies. They may also
have received compensation and/or s eek to obtain compensation for broking, investment banking/corporate advisory and
other s ervices from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

S ingapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.
198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the
Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign
entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial
Advis ers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert
Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to s uch persons
only to the extent required by law. Singapore recipients s hould contact DBS Bank Ltd at 6327 2288 for matters arising from,
or in connection with the report.
Th ailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.
U nited This report is produced by DBSVHK which is regulated by the Hong Kong Securities and Futures Commission
Ki ngdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised
and regulated by the Financial Conduct Authority in the United Kingdom.
In res pect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and
as s ociated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any
form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at
pers ons having professional experience in matters relating to investments . Any investment activity fo llowing from this
communication will only be engaged in with s uch persons. Persons who do not have professional experience in matters
relating to investments s hould not rely on this communication.
D u bai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3 rd Floor,
I n ternational Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank
Fi nancial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for
C entre profes sional clients (as defined in the DFSA rulebook) and no other person may act upon it.

Page 14
 Industry Focus
Hong Kong Hotel Sector

U nited Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined
Em irates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes
only and should not be relied upon or acted on by the recipient or considered as a s olicitation or inducement to buy or s ell
any financial product. It does not constitute a personal recommendation or take into account the particular investment
objectives, financial situation, or needs of individual clients. You s hould co ntact your relationship manager or investment
adviser if you need advice on the merits of buying, s elling or holding a particular investment. You s hould note that the
information in this report may be out of date and it is not represented or warranted to b e accurate, timely or complete. This
report or any portion thereof may not be reprinted, s old or redistributed without our written consent.
U nited States This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research an alyst(s) named on
this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research
analyst(s) are not s ubject to FINRA Rule 2241 restrictions on analyst compensation, communications with a s ubject compa ny,
public appearances and trading s ecurities held by a research analyst. This report is being distributed in the United States by
DBSVUSA, which accepts responsibility for its contents . This report may only be distributed to Major U.S. Institutional
Investors (as defined in SEC Rule 15a-6) and to s uch other institutional investors and qualified persons as DBSVUSA may
authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein s hou ld
contact DBSVUSA directly and not its affiliate.
O ther In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
j urisdictions profes sional, institutional or s ophisticated investors as defined in the laws and regulations of s uch jurisdictions.
D BS Vickers (Hong Kong) Limited
th
18 Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong
Tel: (852) 2820-4888, Fax: (852) 2868-1523
Company Regn. No. 31758

Page 15
Industry Focus
Hong Kong Hotel Sector

D BS Regional Research Offices

H O NG KONG M A LAYSIA S INGAPORE

D BS Vickers (Hong Kong) Ltd A llianceDBS Research Sdn Bhd D BS Bank Ltd
C o ntact: Carol Wu C o ntact: Wong Ming Tek (128540 U) C o ntact: Janice Chua
18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard,
68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3
Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982
Tel: 852 2820 4888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888
Fax: 852 2863 1523 Tel.: 603 2604 3333 Fax: 65 65353 418
e-mail: dbsvhk@dbs.com Fax: 603 2604 3921 e-mail: equityresearch@dbs.com
Participant of the Stock Exchange of Hong Kong Ltd e-mail: general@alliancedbs.com Company Regn. No. 196800306E

I N DONESIA TH AILAND
PT DBS Vickers Sekuritas (Indonesia) D BS Vickers Securities (Thailand) Co Ltd
C o ntact: Maynard Priajaya Arif C o ntact: Chanpen Sirithanarattanakul
DBS Bank Tower 989 Siam Piwat Tower Building,
Ciputra World 1, 32/F 9th, 14th-15th Floor
Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan,
Jakarta 12940, Indonesia Bangkok Thailand 10330
Tel: 62 21 3003 4900 Tel. 66 2 857 7831
Fax: 6221 3003 4943 Fax: 66 2 658 1269
e-mail: research@id.dbsvickers.com e-mail: research@th.dbs.com
Company Regn. No 0105539127012
Securities and Exchange Commission, Thailand

Page 16