Far East Orchard reports 2Q18 net profit up 44 percent, plans to double hospitality portfolio

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Far East Orchard reported on Friday its net profit for the second quarter rose 44.0 percent on-year to S$1.554 million, despite its sales for the period slipping 0.6 percent on-year to S$35.795 million.

Lower sales in the hospitality business in Australia arose from weak market conditions in Perth and Melbourne, with the impact on sales revenue partially offset by an increase in sales from Oasia Suites Kuala Lumpur and Orchard Parade Hotel, it said in a filing to SGX before the market open on Friday.

But the lower sales were offset by a higher gross profit contribution from Oasia Suites Kuala Lumpur and operational improvement measures, it said.

In a separate filing on Friday, Far East Orchard said it has signed hotel management contracts for 1,920 rooms across nine properties in Australia (Adelaide, Hobart, Melbourne), Germany (Wiesbaden) and Singapore in the first six months of 2018.

For the first half, net profit rose 38.0 percent on-year to S$9.22 million, while sales fell 0.6 percent on-year to S$74.95 million, it said.

In its outlook, Far East Orchard said the Australian hospitality outlook remained positive, but the pace of growth is expected to vary by city.

“The Sydney hotel accommodation market is expected to continue to be the top performer. In Melbourne and Perth, where the group owns and operates hotels, performance is expected to be challenged by the continued increase in new supply, exerting downward pressures on room rates,” it said. “While performance of hotels in Brisbane is anticipated to improve, supported by strengthening corporate demand, new supply will constrain growth in room rates.”

It noted it completed and opened the 220-room Adina Apartment Hotel Brisbane located in Brisbane’s Central Business District in July.

Within Singapore, Far East Orchard said it expected the near-term hospitality outlook would be positive amid limited new room supply, rising visitor arrivals, a corporate demand recovery and a strong calendar for Meetings, Incentives, Conventions and Events (MICE). But it added that serviced residence demand would likely lag hotels amid soft corporate long-stay demand.

However, it said growing demand for service apartments in Germany would bode well for its existing and pipeline properties under the Adina Apartment Hotel brand there.

In a separate filing on Friday, the company said it has signed hotel management contracts for 1,920 rooms in Australia, Germany and Singapore in the first half of the year. It increased Far East Orchard’s hospitality pipeline to 4,100 rooms in Australia, Germany, Austria and Singapore, it said.

That was part of its target to manage 30,000 hotel rooms by 2023, it said.

“With the pipeline of hospitality management contracts secured year-to-date, we look forward to steadily scale our hospitality presence internationally. We also remain on an active lookout for expansion opportunities through investments, acquisitions and strategic alliances,”Lui Chong Chee, Far East Orchard’s group CEO and managing director, said in the statement.

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