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Property Investments business behind the drop in Hotel Royal’s revenue and profitability - 2018 Annual Report

2020/03/06

Source: Canva

Hotel Royal Ltd (Hotel Royal)

Source: Hotel Royal

Listed on the SGX in 1968, Hotel Royal is primarily engaged in Hotel Operations, Property Investments and Financial Investments. The company owns a total of seven hotels in Singapore, Malaysia and Thailand, as well as a commercial complex in Wellington, New Zealand.

FY 2018 Financial Highlights:

Source: Hotel Royal Website

  • Hotel Royal’s revenue dropped by 2.3% year-on-year to SGD 60.1 million in FY 2018, while gross profit fell 2.9% to SGD 30.2 million.
  • Operating income from other sources (i.e. foreign exchange gain, miscellaneous other income and gain on disposal of property, plant and equipment) declined by 50.9% to SGD 0.95 million –primarily due to an absence of disposal gain from available-for-sale investments, that was recorded last year.
  • Consequently, Hotel Royal’s FY 2018 pre-tax profits decreased by 7.9% year-on-year to SGD 10.3 million, while net profit attributable to shareholders dropped by 8.3% to SGD 6.9 million.

Performance Drivers:

Source: Hotel Royal FY 2018 Annual Report

Performance Drivers (Positive Factors)

  • Hotel Operations Segment

Hotel Royal’s Hotel Operations segment continued to be the largest contributor to overall earnings, accounting for 72% of total profit. Pre-tax profits from this segment rose by 12.1% to SGD 10.6 million in FY 2018.

  • Malaysia

In FY 2018, Hotel Royal’s Malaysia operations achieved a 120.7% year-on-year surge in pre-tax profits to SGD 228,000. This was due to a 3.8% rise in revenue to SGD 10 million – resulting from higher rental income of investment properties, as well as lower operating expenses from its hotels.

Performance Drivers (Negative Factors)

  • Property Investments Segment

Hotel Royal’s Property Investments segment accounted for 27% of pre-tax profits in FY 2018. This segment recorded a 28.2% year-on-year decrease in pre-tax profits to SGD 3.9 million in FY 2018. The decrease was due to a 12.2% decline in rental income from investment properties to SGD 8.4 million, which came on the back of lower occupancy at its Singapore and New Zealand properties. Nevertheless, the decline was offset by better performance in Malaysia properties.

  • Financial Investments Segment

Hotel Royal’s Financial Investments Segment accounted for only 1% of pre-tax profits in FY 2018. This segment reported a significant 91.2% year-on-year decline in pre-tax profits to SGD 75,000, which was mainly due to the absence of a net gain on disposal of available-for-sale investments recorded in FY 2017.

  • Singapore

In FY 2018, Hotel Royal’s Singapore operations recorded a 1.7% year-on-year drop in revenue to SGD 26.9 million, while pre-tax profits declined by 7.7% to SGD 7.9 million. This was mainly due to a downward adjustment of room rates, as well as lower room occupancy resulting from keen competition and increase in room inventory.

  • Thailand

Hotel Royal’s Thailand operations posted a 1.9% year-on-year decrease in revenue to SGD 16.9 million in FY 2018, while pre-tax profits dropped by 10.5% to SGD 4.1 million. The drop came on the back of lower occupancy levels in its Bangkok hotel.

  • New Zealand

Revenue from Hotel Royal’s New Zealand operations declined by 13.5% year-on-year to SGD 6.3 million in FY 2018, while pre-taxs profit decreased by 37% to SGD 2.3 million. The decrease was mainly due to a major refurbishment of the property. Profitability is expected to increase when the refurbishment in completed in 2019.

Source: Hotel Royal FY 2018 Annual Report

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