Mandarin Oriental International - DBS Research 2022-08-29: Big Fan Of Luxury Travel

Mandarin Oriental International - Big Fan Of Luxury Travel

  • Mandarin Oriental (SGX:M04) is an established owner and operator of hotels, resorts, and residences globally in the luxury segment. The brand was started in 1963 in Hong Kong and it has grown to be one of the leading luxury hotel groups in the world. The group now operates 36 hotels and 7 residences in 24 countries and territories.
  • We are initiating coverage on Mandarin Oriental with a BUY recommendation and target price of US$2.30, based on a sum-of-the-parts (SOTP) valuation with a 40% discount on owned hotels and The Excelsior, Hong Kong. This represents a potential upside of 14%.
  • Mandarin Oriental's share price currently trades at an attractive P/NAV of 0.75x, which is ~0.5 standard deviation below its 5-year historical mean.

Wanderlust – a strong desire to travel.

  • While the hospitality industry was one of the sectors hardest hit by COVID-19, the worst is now over and the prospects for recovery are looking more optimistic than expected on the back of positive travel demand. The immense pent-up demand of travellers is evident after more than two years of disrupted travel plans and pandemic fatigue. As more countries reopen international borders and ease restrictions, we anticipate continued heightened enthusiasm for travel.

Beneficiary of less price sensitive travellers.

  • We believe that Mandarin Oriental is relatively insulated from a decline in demand due to increased travel cost pressures, given that it operates in the luxury segment and caters to consumers who are less price sensitive and are willing to pay more for quality service and amenities, especially in the initial years post pandemic lockdowns.
  • Coupled with the low unemployment rate and high level of excess savings, travellers are willing and able to spend more, which is a positive for high-end hotels like Mandarin Oriental. The gradual resumption of corporate travel from 2H22 onwards will also give its performance another boost.

Optimism on RevPAR and profitability as occupancy ramps up.

  • The recovery in the average daily rate (ADR) has been ahead of occupancy recovery for Mandarin Oriental hotels in all regions (Asia Pacific; Europe, Middle East & Africa; and America), and we expect the rebound to continue as occupancy catches up from 2H22 onwards.
  • Our RevPAR forecasts for Mandarin Oriental in FY22F/FY23F are at US$251/US$294, which is 91%/107% of pre-COVID-19 levels, respectively. We also see a turnaround in profitability and the resumption of dividend payouts by FY23F.

Catalyst: Reopening of Hong Kong, China, and Japan.

  • With Asia’s recovery lagging behind that of other regions, the return to normalcy in Hong Kong, China, and Japan will greatly bolster Asia’s performance. While the recovery ahead remains uncertain, we anticipate a rapid and significant return of demand once restrictions are lifted, bringing the next leg of growth for Mandarin Oriental’s hotels in these countries.

Strong development pipeline of managed properties to help boost bottom-line growth.

  • Mandarin Oriental is expected to grow by 25 projects, likely to open in the next five years, comprising 11 standalone hotel projects, 11 projects with hotel and residential components, and 3 standalone residential projects.
  • With no equity investment required and higher margins for management contracts, we expect these managed properties to help boost bottom-line growth upon completion.

Mandarin Oriental - Valuation & Peer Comparison

  • Target Valuation of Mandarin Oriental’s owned hotels and The Excelsior, Hong Kong: Our RNAV valuation includes our
    1. fair value estimates for Mandarin Oriental’s 15 owned hotels in Asia Pacific; Europe, Middle East, & Africa; and the Americas; and
    2. book value of The Excelsior, Hong Kong.
  • After considering the group’s net debt, we estimate a RNAV of US$4,299m and a RNAV per share of US$3.40.
  • We apply a discount of 40%, as the stock is more illiquid compared to its global peers, giving a target valuation of US$2,580m and target valuation per share of US$2.04.
  • RNAV of Mandarin Oriental’s managed properties: Our RNAV valuation includes our fair value estimates for Mandarin Oriental’s 21 managed properties in Asia Pacific and Europe, Middle East, & Africa. We estimate a RNAV of US$333m and a RNAV per share of US$0.26.
  • Target Valuation of Mandarin Oriental. Using SOTP, we arrive at a target value of US$2,912m and a target price of US$2.30 for Mandarin Oriental.
  • Mandarin Oriental's share price currently trades at a P/NAV of 0.75x, which is ~0.5 standard deviation below its 5-year historical mean of 1.18x.
  • Compared to its SG peers (CDL Hospitality Trusts (SGX:J85), Far East Hospitality Trust (SGX:Q5T) and Hotel Properties (SGX:H15)), Mandarin Oriental is also trading at a discount compared to its peer average of 0.95x. We believe that the current valuations are undemanding, given that Mandarin Oriental is well positioned to ride the travel surge on the back of immense pent-up demand, catering to travellers who are more willing and able to spend, which is positive in this inflationary environment.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Tabitha FOO DBS Group Research | Derek TAN DBS Research | 2022-08-29
SGX Stock Analyst Report BUY INITIATE BUY 2.30 SAME 2.30

Relevant links:
Mandarin Oriental Analyst Report,
Mandarin Oriental Target Price,

Mandarin Oriental Share Price History,
Mandarin Oriental Announcements,
Mandarin Oriental Dividends/ Corp Actions,
Mandarin Oriental News Articles


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