Hotels poised for meaningful recovery from pandemic decline

Analysts expect the strong growth in inbound tourists to continue in the coming quarters. — Reuters

HOTELIERS are poised to see a rebound as tourists continue to enter the country in record numbers, possibly already exceeding earlier projections made by the authorities. Interestingly, the rebound in tourism numbers are not only happening domestically but internationally as well.

This would see companies with overseas hotel assets benefit while domestic-centric hoteliers are likely to experience increased gains from any sustained weakness in the ringgit foreign-exchange differentials.

The first quarter of 2024 (1Q24) saw a jump of some 32% of inbound tourists into the country to 5.8 million from 1Q23, according to official government data by the Tourism Ministry.

Analysts expect the strong growth in inbound tourists to continue in the coming quarters following the 30-day visa-free travel for China and India and the planned increase in flight capacities from these and other Asian countries.

The rebound in tourist numbers into the country is also in line with global trends as the numbers on this front see a recovery to near pre-pandemic levels.

According to United Nations Tourism (UNT), international tourist arrivals reached 97% of pre-pandemic levels in 1Q24.

It notes more than 285 million tourists travelled internationally in the 1Q24 period, about 20% more than 1Q23, pointing to the sector’s near-complete recovery from the impact of the pandemic.

In Asia Pacific, tourist arrivals had reached 82% of the pre-pandemic level in 1Q24 and had recovered from 65% in 1Q23, the UNT says. The body expects international tourism to recover completely in 2024 on strong demand.

The World Economic Forum’s Travel & Tourism Development Index 2024 (TTDI24) report suggests global tourism growth will be reinforced this year by pent-up demand and growth in major Asian markets, while noting travel restrictions in this region were lifted later compared to other regions.

But the TTDI24 report cautions that the industry still faces some challenges which may dampen this expected growth such as rising geopolitical tensions, and elevated global inflation and interest rates.

It is notable that Malaysia appears to be recovering quicker than its peers since it is the only country in South-East Asia that reported tourism numbers that exceeded pre-pandemic levels last year.

Bursa Malaysia is home to several stocks and real estate investment trusts (REITs) that have exposure to both domestic and international hotel assets.

These include Shangri-La Hotels (M) Bhd (SHM), IOI Properties Group Bhd, YTL Hospitality-REIT and Sunway-REIT.

Former senior investment banker and high-net-worth investor Ian Yoong expects hoteliers to record robust revenue growth of 20% to 25% this year.

“This will positively impact operating profit by up to 30% to 40%,” Yoong tells StarBizWeek.

Yoong likes YTL Hospitality-REIT in particular at this juncture, noting its strong fundamentals and reasonable unit price.

He notes that the REIT counter trades at a net dividend per unit yield of 7.8% and 7% for the financial year 2024 (FY24) and FY25 respectively with a price to net tangible assets of 0.7.

“It is an attractive investment at current levels. The recent acquisition of Syuen Hotel in Ipoh and the launch of Moxy Niseko in Japan will help to boost profitability in FY25,” he says.

For companies with local hotel assets, they could benefit from generally lower room rates in addition to the weak ringgit exchange rate differentials against major currencies.

“The hotel room rates in Malaysia are 30% to 35% lower than hotel room rates in many countries in South-East Asia,” Yoong notes.

On the broader industry outlook, Yoong is optimistic that Malaysia will be able to meet Tourism Malaysia’s target of a 36% year-on-year growth in foreign tourist arrivals for 2024.

“Channel checks indicate that there has been a surge in number of China nationals visiting Malaysia.

“China tourists have been fearful of visiting neighbouring countries in the north (Asean) because of kidnappings and the high crime rate in these countries. Malaysia is deemed to be the safest country in South-East Asia after Singapore and was the most popular tourist destination in the region in 2023, overtaking Thailand,” Yoong says.