Source: OCBC Research

3Q buoyed by several one-off items. Hotel Grand Central's (HGC) 3Q07 earnings were stronger than expected boosted by several one-off items. Net earnings came in at S$16.2m, up 60% YoY, on flat revenue of S$32.8m. This came from exceptional gains of S$1.5m, write-back of deferred tax and a forex gain of S$1.4m. The latter was largely due to the sharp appreciation of the Australian dollar (AUD) in recent months. Since the start of the year, both the AUD and New Zealand Dollar (NZD) have appreciated against the Singapore dollar (SGD). The most acute jump took place in 3Q07 where the AUD shot up by about 9% against the SGD and the NZD by up about 4.2%. As HGC continues to derive a significant portion of its earnings from both countries, this has a positive impact on the group. The tax credit was due to the write-back of deferred taxation previously provided for the Hotel Grand Chancellor Perth which it sold for A$52m in June 2007.

With the better cash position, the group also benefited from higher rental income and lower interest expenses. Overall, its hotel operations in Singapore, Australia and New Zealand continued to enjoy better rates, although the flat revenue was once again attributed to the sale of its Perth Hotel in Jun 2007. For the 9-month period, revenue rose 4% YoY to S$100.7m, while net earnings moved up 74% YoY to S$48.3m.

Raising FY07 and FY08 estimates. We are adjusting our FY07 earnings from S$45.7m to S$56.1m, largely to reflect the exceptional gains, higher forex gains and the write-back of taxes in 3Q07. For FY08, we are increasing our earnings from S$28.2m (assuming no exceptional gains) to S$31.1m, mainly to account for higher interest income and forex gains of S$0.7m (versus S$0.4m previously).

Maintain BUY. The stock has once again done well so far this year, marking its third year of strong double-digit capital gains. Recently, it touched a high of S$1.37, but closed yesterday at S$1.07. With the sharp appreciation of the AUD, we expect this to re-ignite interest in HGC for its exposure to the Australian market. We reiterate our BUY rating for HGC due to the still buoyant outlook for Singapore and the regional tourism industry. Our fair value estimate for the stock remains at S$1.25.