News

• Tourism Tax Bill 2017 was passed by parliament yesterday and the bill will allow the government to impose tourism tax levied on a tourist staying at any accommodation premise made available by an operator at the rate fixed by the minister in accordance with the law.

• According to the last briefing by the authorities in January, the rates would differ according to a hotel’s star rating and it applies to all hotel guests, be it foreigners or locals. It is

understood that the tax for non-rated hotels will be RM2.50, while the tax for 2-star, 3-star, 4-star and 5-star hotels were set at RM5, RM10, RM15 and RM20, respectively.

Comments

• We opine that the Tourism Tax Bill is slightly negative to the tourism industry in general (despite a rise in visitor arrivals) as well as to the gaming and REIT sectors that have hotel operations. We expect the Bill to further impact major hoteliers who are currently facing headwinds from rising cost structure and shift of demand to cheaper alternative lodging options such as boutique hotels and Airbnb.

• We gather that the implementation could take place as soon as May, given that the government could implement it immediately after consent has been obtained from the Yang di-Pertuan Agong on the passed Tourism Tax Bill.

• We opine that occupancy rate for hoteliers may be affected in the short term with more vigorous demand shift from rated hotels to non-rated hotels or alternate accommodations such as Airbnb.

• While the actual impact to the cost structure is still to be determined, we believe that the industry players will likely pass through the tourism tax to consumers. Despite this, margins will still be affected as we can expect higher administrative cost associated with the tax (eg. staff, credit card charges).

• In the interim, we also believe that industry players may have to absorb the potential tax levy for the existing pre booked hotel reservations that prior to the implementation date for this new ruling in which the service will only be rendered post-implementation.

Sector Impact

• For Gaming, we are of the view that GenM ( HOLD, RM5.10 ) might be hit with the extra levy cost given that 72% of their hotels are occupied by their non-paying members. Assuming 11k hotel rooms in their inventory with an average occupancy rate of 90% and 72% members, the potential extra cost based on RM15 per room per night could amount to circa RM40m p.a. (circa 2% of GenM’s FY17E PBT and <1% for GenT’s ( BUY, RM10.75 ) FY17E PBT). However, we do not expect the occupancy rate for GenM to be affected as their hotels are catered for the captive market.

• For REIT, we believe the impact is minimal as contribution from hotel assets to total revenue is slightly above 10%. The potential impact to FY17 PBT for KLCC ( HOLD, RM7.44 ) and SREIT ( HOLD, RM1.70 ) are only 0.2% and 0.3% for every 1% drop in average occupancy rate in their hotel assets.

Forecasts

• No change in our forecasts and ratings.

Source: Hong Leong Investment Bank Research - 7 Apr 2017