Sri Lanka Tourism Sector

Bright Horizons: Navigating Tourism's Growth Revival

EQUITY | SRI LANKA | HOTELS |SECTOR UPDATE | SEP 2023

FIRST CAPITAL RESEARCH

Analysts:

Tharusha Ashokgar
[email protected]

Nethmi Fernando
[email protected]
Executive Summary
▪ Global tourism bounced back in 1Q2023, reaching 80% of pre-pandemic levels with about 335.0Mn international travelers, more than the 2022 figures.
The Middle East excelled, exceeding 2019 arrivals by 15% and fully recovering within a single quarter. Meanwhile, Asia and the Pacific region hit 54% of
pre-pandemic levels, with this upward trend set to accelerate further as most destinations, including China, have reopened.

▪ In 1H2023, Sri Lanka witnessed a robust tourist arrival recovery, surpassing targets. The currency depreciation and effective tourism promotion campaigns
positioned Sri Lanka as an attractive and affordable destination. Consequently, we have raised our 2023 year-end target to 1.5Mn arrivals, reflecting an
expected 106.0%YoY growth, resulting in earnings of LKR 1.9Bn. Currently, the country-wide occupancy rate stands at 42.0%, leaving ample room for
further recovery.

▪ China accounted for 11.4% of the total tourists to Sri Lanka in 2018 and remained the top source market next to India. The easing of restrictions in China is
poised to bolster tourist arrivals and drive growth in Sri Lanka's tourism sector. The notable increase in Chinese arrivals to Sri Lanka is indeed an
encouraging development for the tourism sector, as Chinese tourists are widely recognized as heavy spenders.

▪ Further, significant devaluation of LKR against USD has made holidays in Sri Lanka even more affordable for international travelers compared to pre-
pandemic levels. Despite an increase in local prices, accommodation and other travel expenses have significantly decreased by approximately 40% in terms
of USD as a result of LKR devaluation.

▪ Sri Lanka possesses significant potential to attract tourists from the Meetings, Incentives, Conventions, and Exhibitions (MICE) sector, primarily owing to its
strategic location in the Indian Ocean. This segment of tourists typically spends three times more than leisure travelers. Sri Lanka has been steadily
approaching pre-pandemic levels in the MICE sector, with India, Bangladesh, Pakistan, Germany, the Middle East (including Saudi Arabia, Doha, and Dubai),
and the UK playing vital roles in contributing to this positive trend.

▪ Top Picks: Overseas Exposure: AHUN, KHL and CONN

Coastal Hotels: RPBH,SHOT and STAF
City Hotel: AHPL
2
 Tourism Snapshot

Tourist Arrivals Tourism Earnings

2023YTD : USD 1.1Bn
2023YTD : 904,318 2022 : USD 1.1Bn
2022 : 719,978

MICE arrivals out of total arrivals

Average Duration of stay 2023 Aug : 5.0%
*2023 : 8.6 Days 2022 Aug : 1.0%
2022 : 9.3 Days

Average Spending per day

Occupancy
*2023 : USD 164.4
*2023 : 42.0%
2022 : USD 164.4
2022 : 30.4%

*Data as of Jan-May 2023 3

 ASPI vs Consumer Services Sector Index
The consistent increase in tourist arrivals, exceeding our projected targets, underscores a promising resurgence in the Hotels and Tourism sector. Hence,
considering the positive outlook ahead for the Hotels and Tourism industry, we maintain our recommendation at BUY
ASPI CS Index
Price Movement of ASPI vs Consumer Services Sector
15,000 600
TRADING BUY TRADING BUY BUY BUY BUY

13,000 550

500
11,000

450
9,000
400
7,000
350

5,000
300

3,000 250

1,000 200

ASPI Consumer Services Index 4

Source: CSE
More than 65% of hotel sector counters showed YoY appreciation, amidst
the steady recovery of the industry
AHPL 50%
SHOT.X 39%
TAJ 36%
KHL 31%
NEH 30%
AHUN 29%
SERV 25%
PEG 25%
First Capital Research recommended stocks CONN 24%
STAF 23%
KHC 21%
RHTL 18%
GHLL 16%
EDEN 15%
RCH 14%
RFL 14%
HSIG 13%
SHOT 9%
TRAN 5%
BRR 3%
REEF 3%
0% CITW
0% BERU
-1% BBH
-2% CITH
-4% RPBH
-4% CHOT
With the gradual resurgence in the tourism sector the
-6% LHL share prices of nearly 65% of the hotels listed in the
-7% MRH CSE have risen on a YoY basis (Sep 2022-Sep 2023).
-7% RENU
-11% JETS
-11% MARA
-12% SIGV
-12% TANG
-30% PALM Source: First Capital Research 5
 Global Tourism Resurgence– at a glance
Global inbound and outbound tourism experienced a notable resurgence in 2022, Pent up demand for travel has driven occupancy ratios close to pre-
and anticipated to grow further pandemic levels
60
115% 118%
40
20

16% 24% 24% 0

9% 7% 16%
-20
-40
-60
-73% -72%
2020 2021 2022 2023E 2024E
Inbound Outbond Travel Sentiment (Net score) Occupancy Rates (%)

Asia and Pacific tourism arrivals halfway to 2019 levels, while Middle-East fully South Asia's market share in the Asia Pacific region surged from 9% in
recovers in 1Q2023 2019 to 28% in 2022, marking the fastest tourism revival
2019 2022
100% 10% 12% 14% 46%
20% North-East Asia
90% 88%
80%
86%
38% 5% 19%
28%
South-East Asia 9%
54%
Oceania 7%
47%
South Asia 47%
World Middle East Europe Africa Americas Asia Pacific
Recovered Pending Source: UNWTO, Statista 6
 Global Tourism Resurgence– Asia and Pacific Region
Top 5 tourist destination – South Asia Top 5 tourist destination – South-East Asia

India Thailand

South-East Asia account for nearly 46.0%

Sri Lanka Singapore
Maldives stood out as the only South of the visitors to Asia Pacific in 2022
Asian country to achieve robust growth despite the internal travel restrictions that
Maldives Vietnam
in tourism, nearly reaching pre- persisted during the year. Moreover,
pandemic levels in 2022. compared to global peers, Asia’s travel
Nepal Indonesia and tourism sector appears better
positioned to weather.
Bangladesh Philippines

0.0 2.0 4.0 6.0 8.0 10.0 12.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0
Arrivals Mn 2019 2022
Arrivals Mn
2019 2022

International Tourism Expenditure 2019 Vs 2022 (USD Bn)

China • China stands out as the sole Asian country to not only appear in the top
United States rankings for outbound travel expenditure but also to lead the list.
Germany 2019
• Despite the travel restrictions imposed during the pandemic, China remains
United Kingdom one of the largest spenders among arrivals in 2022.
2022
France
• Sri Lanka's list of the top 10 source markets for 2022 includes seven of the
Russia
world's top 10 spending source markets.
Australia
Canada • Sri Lanka accounted for around 0.11% of China’s outbound travelers in
Italy 2019 despite China being one of the largest source market for Sri Lanka.
Spain
0.0 50.0 100.0 150.0 200.0 250.0 300.0
Source: UNWTO 7
 Surpassing expectations: YoY rebound in tourist arrivals in Sri Lanka
sparks new hope..
Tourist Arrivals Resurgence in 1H2023: Tourist arrivals in Sri Lanka recorded a steady recovery in 1H2023 outpacing the targets. This recovery was supported
mainly by high global vaccination rates, increased air connectivity, along with the lifting of travel restrictions issued by major source countries. Additionally, the
significant depreciation of the LKR and tourism promotion campaigns played a pivotal role in positioning Sri Lanka as an attractive and affordable destination
for travel. Given the accelerated pace of this recovery, we have revised up our 2023 year-end target to 1.5Mn arrivals (previous: 1.2Mn), reflecting an
anticipated YoY growth of over 100.0%.

Seasonal Trends in Occupancy Rates: Despite Sri Lanka's year-round appeal to tourists, it's notable that the Q1 (Jan to Mar) and the Q4 (Oct to Dec)
collectively accounted for a significant portion, approximately 66.5%, of the total annual tourist arrivals in 2022. This trend is evident in the consistently
elevated average occupancy levels observed during the first and fourth quarters of previous years.
Average 10Yr occupancy (2010-
No. of Arrivals Forecast for 2023E tourist arrivals revised up to 1.5Mn with occupancy to reach 50% 2019): 71% Occupancy
3,000,000 80%
72% 74% 75% 75% 73% 73%
71% 70%
2,500,000
60%
57%
2,000,000
50% 50%

1,500,000 40%

30% 30%

1,482,943

1,855,220

2,530,192
1,000,000
19% 20%
500,000 5Yr CAGR of 12.9% 15%
10%

0 0%

Tourism arrivals Occupancy Source: SLTDA, First Capital Research 8

 …and drives significant dollar inflow
Peer Countries Average No.of Arrivals
Earnings from tourism surged at a 20.6% 5-year CAGR from 2013 to 2018, spending per (Mn)
Earnings outpacing arrivals growth, driven by the significant depreciation of LKR, tourist in 2022
USD
(USD Mn) resulting in higher average spending per arrival. (USD)
5,000.00 200

4,500.00 Maldives 2,685 1.68

180
4,000.00 Singapore 1,870 6.31

3,500.00
Sri Lanka 1,578 0.72
160
Philipines 1,575 2.65
3,000.00
Thailand 1,150 11.16
2,500.00 140
Indonesia 1,141 5.89
2,000.00
Vietnam 1,049 3.66
120
1,500.00
Global 1,106 969.4
1,000.00 5Yr CAGR of 20.6% 100

1,927.8

2,968.4

4,048.3
500.00 Sri Lanka is well below regional peers such as Maldives
and Singapore, indicating that Sri Lanka is not
0.00 80 positioned as a high-end destination in comparison.
Notably, the average spending by tourists in Sri Lanka
surpasses both the global average and the majority of
top Asian destinations including Thailand, and
Earnings (USD Mn) Receipts per tourist per day Indonesia, which are preferred by travelers.

Source: SLTDA, UNWTO, First Capital Research 9

 Monthly tourist arrivals show remarkable growth with….
Daily Top Source Markets to Sri Lanka
Growth%
Month 2018 2022 2023 Average
2023/2022
2023 Source market 2023 YTD (Jan-Aug) 2018
Jan 238,924 82,327 102,545 25% 3,308
170,247 424,887
Feb 235,618 96,507 107,639 12% 3,844
India (112.5%YoY)
Mar 233,382 106,500 125,495 18% 4,048
125,137 64,497
Apr 180,429 62,980 105,498 68% 3,517
Russia (151.5%YoY)

May 129,466 30,207 83,309 176% 2,687 83,339 254,176

UK (26.9%YoY)
Jun 146,828 32,856 100,388 206% 3,346
61,682 156,888
Jul 217,829 47,293 143,039 202% 4,614 Germany (52.8%YoY)
Aug 200,359 37,760 136,405 261% 4,400 41,243 106,449
France (46.1%YoY)
Sep 149,087 29,802 107,343 300% 3,976

Oct 153,123 42,026 128,623 199% 4,050 Australia 39,186 110,928

(112.8%YoY)
Nov 195,582 59,759 160,377 136% 4,694
China 37,743 265,965
Dec 253,169 91,961 182,282 60% 4,737 (1483.2%YoY)

Total 2,333,796 719,978 1,482,943 106% 3,936 Source: SLTDA, First Capital Research 10
 …Continued boost expected from India and China
With more than 150,000 arrivals YTD, India topped the % Share No. of Arrivals
Relaxed restrictions in China to boost tourist arrivals % Share
No. of Arrivals
source market list in 2023 and stimulate growth in Sri Lanka's tourism sector
450,000 35% 300,000 14%
400,000 30% 250,000 12%
350,000
25% 10%
300,000 200,000
250,000 20% 8%
150,000
200,000 15% 6%
150,000 100,000
10% 4%
100,000
5% 50,000 2%
50,000
0 0% 0 0%
2017 2018 2019 2020 2021 2022 2023 (Jan- 2017 2018 2019 2020 2021 2022 2023 (Jan-
Aug) Aug)
Arrivals % Share Arrivals % Share

India emerged as the largest source market for outbound travelers in China accounted for 11.4% of the total tourists to Sri Lanka in 2018 and
Asia in 2022 with a registered growth rate of 190.0%YoY significantly remained the top source market next to India.
higher than the average global increase of 90%.
China is the leading country in terms of outbound tourism globally,
India, being the largest source market for Sri Lanka, offers significant contributing to over 20.0% of the world's outbound tourism
potential due to its rapidly expanding middle-income population. The expenditure in 2022.
middle-class segment has grown from less than 10% of the total
population in 2012 to 31% in 2021 and is projected to double by 2047. Sri Lanka represents only 0.11% of China's outbound departures.
However, with the reopening of borders for travel, there is an
Over 50% of trips from India to Sri Lanka were for leisure purposes, with anticipated increase in Chinese tourist arrivals to Sri Lanka, supported
business travel also on the rise, accounting for 16% in 2022. by an expansion in China Eastern Airlines flight frequency from 1 flight
to 5 flights per week.
Average spending per departure: 2022- USD 1,516.3 (2019- USD 859.0)
Average spending per departure: 2022- >USD 10,000 (2019- USD 1,647)

Source: SLTDA, UNWTO 11

 Depreciation of LKR making Sri Lanka holidays more affordable than pre-
pandemic levels
Despite an increase in local prices, the accommodation and other travel costs has significantly dipped by over 25.0% from pre pandemic
level rates in terms of USD as a result of LKR devaluation which would be an encouraging factor for tourists to visit Sri Lanka.

The CCPI has consistently slowed down, LKR depreciation of over 80% compared to pre Despite cost escalations, Average Room Rate
surpassing expectations, signifying lower pandemic times, made the cost of living in SL (ARR) remained relatively cheaper compared to
inflationary pressures and potentially boosting more affordable for international travelers pre pandemic levels amidst steep depreciation
consumer spending power LKR USD
80.0% 380.00 28,000 140.0
360.00 360.00 ARR dipped by
360.00 over 40.0% in 130.0
70.0% 26,000
terms of USD
340.00 Jun-24, 120.0
320.00 340.00 24,000
60.0%
320.00 110.0
22,000
50.0% 300.00 320.00 320.00
51.7% 50.6% 50.3% 100.0
295.52 20,000
280.00
40.0% 90.0
260.00 280.00 18,000
80.0
30.0% 35.3%
240.00 16,000
70.0
20.0% 25.2% 220.00 14,000
60.0
200.00 12,000
10.0% 50.0
12.0%
4.3% 4.7% 180.00
6.3% 0.9% 2.2% 10,000 40.0
0.0% 4.0% 2017 2018 2019 2020 2021 2022 1H2023
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Average Room Rate (LKR) Average Room Rate (USD)
2022 Actual YoY Inflation 2023E YoY Inflation

2023 Actual YoY Inflation

Source: Department of census and statistics, CBSL, SLTDA, First Capital Research 12
 Cost comparison of trips among peer countries – USD
Type of Sri Lanka Sri Lanka Vietnam Thailand Indonesia Maldives
Accommodation (Min. room (Colombo)- (Ho Chi Minh City) (Bangkok) (Jakarta) (Malé)
rate) Current
Average Room Rate
5 Star 100+ 75+ 150+ 90+ 120+ 190+
(ARR USD)
-City Hotels 4 Star 75+ 50+ 70+ 70+ 60+ 130+
3 Star 50+ 35+ 40+ 45+ 45+ 75+

Sri Lanka Vietnam Thailand Indonesia Maldives

Source Market
(Colombo) (Ho Chi Minh City) (Bangkok) (Jakarta) (Malé)
Flight fare
(USD) India 168.0 226.0 247.0 300.0 295.0
United Kingdom 1,000.0 950.0 1,100.0 1,000.0 1,250.0
China 550.0 350.0 170.0 300.0 950.0

Sri Lanka Vietnam Thailand Indonesia Maldives

Gasoline Price
(USD Per liter) Gasoline 1.29 1.04 1.35 0.96 0.96

*rates as of 18th Sep 2023 Source:Booking.com, Skyscanner, Globalpetrolprices 13

 Sri Lanka tops list of affordable destinations for Digital Nomads
Cost of living (rent, food,
• A Digital nomad visa is a temporary residence permit that allows remote
transport and utility bills) per
workers and freelancers to live and work in a foreign country for an
month
extended period while conducting their work online.
Rank Countries GBP USD

1 Sri Lanka £491.00 $624.00 • The availability of digital nomad visas in numerous countries worldwide,
along with the substantial remote workforce, including over 5Mn Brits
2 Argentina £573.00 $728.00 and 16Mn Americans, offers an invaluable opportunity for flexible and
location-independent work.
3 Colombia & North Macedonia £578.00 $734.00

4 Indonesia £591.00 $751.00 • Among the 50 countries offering digital nomad visas, Sri Lanka stands
out as the best value for money, boasting an average monthly cost of
5 Malaysia £649.00 $824.00 living at USD 624.0. This represents a 14% savings in disposable income
compared to the second most affordable country on the list.
6 Brazil £677.00 $860.00

7 Ecuador £694.00 $882.00

8 South Africa £738.00 $937.00 The UK is ranked 16th among the

The USA is one of the expensive most expensive countries to live in,
countries for day-to-day living, with with an average cost of living
9 Cabo/Cape Verde £746.00 $948.00
costs exceeding USD 2,000 per exceeding USD 1,800. In 2022,
10 Albania £747.00 $948.00 month. Their healthcare system is households in the UK experienced
notably the most expensive, with significant increases in fuel and
11 Thailand £755.00 $959.00 citizens spending over 40% more per energy bills, along with soaring prices
person compared to other countries. in grocery stores.
12 Romania £765.00 $972.00
Source: Flamingo 14
 Sri Lanka’s tourists’ authorities are promoting MICE tourism in expectations of filling
Sri Lanka rise as 12.0% of the 1.5Mn tourists target for 2023 as MICE tourists are anticipated to pay
3x the amount of leisure tourist. South Asia, Middle East and Europe are the key
a premium MICE markets for drawing MICE travelers.

destination Sri Lanka has been gradually reaching the pre pandemic MICE levels and the main
source market has been India, Bangladesh, Pakistan, Germany, the Middle East,
Saudi, Doha, Dubai and the UK have also been contributing positively.

Moreover, India organized multiple conferences namely Tata Tiscon and V

institute of India within the first 1Q2023 which attracted over 500 travelers.
Furthermore, Sri Lanka is anticipated to host a number of events namely
SL expect to fill nearly 12% of the total tourist arrivals target in Lupin and Pfizer, Indian Travel agents AGM and the inaugural Jaffna MICE
2023 through MICE tourism which may bring in USD 300.0Mn by EXPO which are set to be major events.
7.0%
the end of 2023
6.0% The India outbound MICE tourism market is projected to reach USD 13.4Bn
by 2031, driven by growth in Indian economy amidst the increase in larger
5.0%
disposable income for businesses and individuals. This has led to increased
4.0% corporate spending on MICE activities, including international events,
conferences, and exhibitions.
3.0%

2.0% World-class infrastructure from hotels and many in-progress developments,

such as Cinnamon Life, ITC Hotels and Port City Colombo, is also slated to
1.0% open more doors to growth and investment in the future out of which the
officials anticipate USD 3.0Bn to enter the country in 2023 as Sri Lanka is
0.0%
now identified as a potential market place.

Source: SLTDA, India outbound 15

 Maldives; setting the Gold Standard in tourism as Asia’s premier tourism
destination
Revenue breakdown: AHUN and KHL
Arrivals ‘000
Maldives recorded bullish resurgence in tourists' arrivals (Sri Lanka vs Overseas operations)
surpassing pre-pandemic levels 100%
1,800 150% 85% 86% 85%
78% 79%
80% 74% 73% 73% 74%
1,600

1,703

1,675
100%
1,400 60% 53% 56%

1,484
48%
1,390

1,200 50%

1,322
1,286

1,278
40%
1,234

1,000
0%
800 20%

600 -50% 0%
FY18 FY19 FY20 FY21 FY22 FY23
400
555 -100%
200 AHUN-SL AHUN-Overseas KHL-SL KHL-Overseas

- -150%
Occupancy breakdown: AHUN and KHL
(Sri Lanka vs Overseas operations)
100%
Tourism arrivals ('000) YoY gowth (%) 90% KHL-Overseas
80%
70%
60% AHUN- Overseas
50%
Tourist arrivals in the Maldives have shown First capital Research expects LKR appreciation 40% KHL- SL
remarkable resilience, nearing pre-pandemic levels against the greenback to be limited in the 30% AHUN- SL
in 2022. This recovery can be attributed to the future amidst the relaxation on imports hence, 20%
government's innovative approaches, effective AHUN, KHL and CONN that are exposed to 10%
publicity, proactive crisis management, and the foreign markets may experience favourable 0%
development of new resorts and attractions. measures FY18 FY19 FY20 FY21 FY22 FY23

Source: Ministry of Tourism Maldives, Annual reports 16

Enhancing a
competitive edge Operating an in-house travel agency alongside a hotel can
yield a multitude of advantages. Notably, it provides
with an Inhouse unparalleled convenience for guests by offering a one-stop
solution for all their travel needs, from booking flights to
Travel Agency arranging tours, all within the hotel premises.

Aitken Spence Hotel Holdings PLC Hayley’s Leisure PLC John keells Hotels PLC

This streamlined approach allows hotels to

curate tailored packages, accommodating
diverse guest preferences and budgets,
increasing the likelihood of bookings and
increasing occupancy whilst boosting
profitability.
Source: Annual reports 17
 Increased tourism sector investment signals strong investor confidence
SLTDA registered Accommodation capacity No. of
No. of Rooms Establishments Accommodation Capacity
60,000 6000
Registered rooms at a 5Yr CAGR of 6.0%
• In 2022, out of 3,829 registered accommodations, only 156 were classified as
50,000 5000
tourist hotels, with 37 being 5-star hotels, accounting for just 4.1% of Sri Lanka's
40,000 4000 total accommodations.
30,000 3000
• The Western province had the highest number of star hotels (57), followed by the
20,000 2000 Central (37) and Southern (30) provinces.
10,000 1000
• The concentration of classified tourist hotels in the Western, Central, and Southern
0 0 provinces highlights uneven development in tourism-related infrastructure and
2017 2018 2019 2020 2021 2022 tourist destinations.
Graded rooms Supplementary rooms No.of Establishments
• The ratio of graded to supplementary rooms shifted from 35% graded to 65%
supplementary rooms in 2019 to 31% graded to 69% supplementary rooms in 2022.
Mix of Classified Tourist hotel rooms (2019 vs 2022)
Investment Projects
2019 2022
• Investment in the sector declined by 48.8%YoY to USD 68.0Mn due to delays and
722 1,687 downscaling of projects by investors, aggravated by construction halts amid
845
challenging economic conditions in 2022.
1,713 5 Star 1,903
5,354 4 Star • Presently, there are 95 hotel projects with 5,424 rooms under construction at
various stages of completion. Additionally, 25 hotel projects with a capacity of
2,000 3 Star 2,449 1,623 rooms are expected to be completed by 2023.
2 Star 5,931

1 Star
2,513
2,513 Boutique Hotel 3,110
Source: CBSL, Annual report 18
Risk Assessment
LIKELIHOOD
LOW MEDIUM HIGH VERY HIGH
Depreciation of LKR
against the USD

LOW
Geo-political instability Re-introduction of
Minimum Room rate
for city hotels
IMPACT

MEDIUM
Arrivals of unregulated Electricity tariff hike
homestay/sharing and power shortages
accommodation such
as Airbnb
HIGH
Taxes and levies Extensive skill
pertaining to migration and shortage
businesses engaging in of experienced
the tourism sector workforce
VERY HIGH

19
 CASE STUDIES:
Tourism: Bridging the Economic Gap
20
 Despite the harsh economic crisis, GREECE witnessed positive growth
momentum in tourist arrivals
Tourism is a vital pillar of Greece's economy, serving as one of the nation's most significant sectors. As a top European tourist destination, Greece's
status as the most visited country has directly and indirectly contributed to nearly 20% of the country’s GDP, playing a pivotal role in its economic
recovery.
Contribution
Debt to GDP GDP growth Arrivals Mn
Debt to GDP and Economic Growth (%) Tourist Arrivals vs Tourism contribution to GDP to GDP
220.0% 10% 35 14.0%
8%
210.0% 30 12.0%
6%
200.0% 4% 25 10.0%

190.0% 2% 20 8.0%
0%
180.0% 15 6.0%
-2%
170.0% -4% 10 4.0%
-6%
160.0% 5 2.0%
-8%
150.0% -10% 0 0.0%
2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022

Debt to GDP GDP growth Tourist arrivals (Mn) Tourism contribution to GDP

• The ‘Euro Crisis’ stemmed from fiscal mismanagement in countries such as; Ireland, Spain, Portugal, and Greece that benefited from economic windfalls upon, adopting the Euro which
resulted these countries to experience a recession.
• The recession weakened Greece’s already paltry tax revenues which caused the recession to worsen leading the country to a liquidity crisis.
• The Greek government then requested bailouts totalling USD 307.2Bn from the IMF through a stand by arrangement (2010-2012) and the EFF (2012-2016) which conditioned on
budget reforms, spending cuts and higher tax revenues. In 2022, Greece has paid off the final tranches of bailout loans owed to the International Monetary Fund earlier ahead of the
deadline amidst the economic recovery and further support lent by the Euro zone.

Source: UNTWO, IMF 21

 Tourism in Jamaica is the leading source of foreign exchange, a significant
GDP contributor, and a long-standing, rapidly growing industry
Tourism has been a strong pillar in Jamaica for its unique culture, beaches and the people, and has been contributing largely to the country's economic
development. Tourism directly employs 175,000 Jamaicans and generates indirect employment for another 354,000 Jamaicans. Overall, the tourism sector
has grown by 36% over the past 30 years against a total economic growth of 10%.
Contribution
Debt to GDP Debt to GDP and Economic Growth (%) GDP growth Arrivals Mn Tourist Arrivals vs Tourism contribution to GDP to GDP
120% 6% 3 35.0%
4%
100% 2.5 30.0%
2%
25.0%
80% 0% 2
-2% 20.0%
60% 1.5
-4% 15.0%
40% -6% 1
10.0%
-8%
20% 0.5 5.0%
-10%
0% -12% 0 0.0%
2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022

Debt to GDP GDP growth Tourist arrivals (Mn) Tourism contribution to GDP

• Jamaica faced its biggest financial crisis as income started to plateau in 1990 and a further setback following the 2008 global financial crisis.
• The country faced its biggest recession followed by policy missteps, high public debt, emigration and brain drain. Hence by 2013 Jamaica’s public debt reached 147% to GDP.
• The government then requested bailouts from the IMF under the EFF 2013 and a stand by arrangement in 2016 totalling SDR 2.6Bn as the country was in the verge of an economic
meltdown.

Source: UNTWO, IMF 22

VALUATION

23
 Market capitalization composition – CSE
Of the LKR 4,547.6Bn total market capitalization, LKR 211.6Bn, Top 5 counters leading market capitalization in
accounting for 5%, is held by Consumer Services (Hotels) sector. Consumer Services sector
Banks
Diversified Financials 10%
16%
Transportation
6%

Telecommunication
Services
4.5%
5% KHL
4.7%
16.4% AHPL
Capital Goods
Consumer Services
5% AHUN
16%
TRAN
Materials 12.5%
4%
GHLL

Insurance
4% 13.2%

Food & Staples Retailing

3%
Food, Beverage &
Tobacco Other Sectors
22% 9%

*Data as of 18th Sep 2023 Source: CSE 24

 The sector, despite high gearing and the impact of high interest rates, found relief
through extended debt moratoriums
• Between 2018 and 2022, the tourism sector's exposure to banks increased from 4.8% to 6.2% of total gross loans. During this period, total gross loans and advances in the banking
sector grew by 50%, while advances and penalties to the tourism sector surged by 95%, notably increasing by 31% in 2022.

• The tourism sector benefitted from a debt moratorium scheme initiated in mid-2020 due to the pandemic. This scheme continued until 30th Jun 2022, with multiple extensions.
Nevertheless, the sector faced challenges due to high inflation and increased electricity tariffs, which added pressure to hotels' working capital requirement. Amidst a high-interest
rate environment, several listed hotels have taken steps to fund their working capital and refurbishment requirements through rights issues.

The escalation in working capital requirements have contributed to the increased gearing of listed hotels

Debt to Equity ratio (%) Operating CF/EBITDA

400% 700.00

350% The Gearing ratio is used to assess a The Operating Cash Flow (OCF) to EBITDA ratio is used to
600.00
company's financial leverage by comparing its assess a company's ability to convert its EBITDA into actual cash
300% debt to its equity, which helps to evaluate flow from operations, providing insights into its financial health
500.00
risk profile and financial stability of the firm. and cash flow quality. A higher ratio indicates that a company is
250% High debt may indicate a need for capital more efficient at converting its operating earnings into cash
400.00
infusion in terms of Rights issue from its core operations, which is generally considered
200%
favorable as it suggests better cash flow generation and
300.00
150% financial health. However, a negative cash flow or tight liquidity
may suggest the need for additional capital.
200.00
100%

50% 100.00

0% -

SHOT.X
SHOT.X

RCH

CITH

JETS

SHOT

RHTL

TAJ
RFL

PEG
BERU
TRAN

HSIG

AHPL

AHUN

CITW
MRH
BBH

CHOT

LHL

TANG

BRR

GHLL

CONN
KHC

STAF

NEH

PALM
SERV

KHL

RENU

RPBH
REEF

MARA

SIGV

EDEN
PEG

SHOT

JETS
RFL

HSIG
RHTL
AHPL

TRAN

CHOT

MRH

CITH

CITW

CONN
AHUN
GHLL

RCH

STAF
BRR

RPBH

TANG

LHL
NEH

PALM
MARA

KHL
RENU

SERV

KHC

SIGV

EDEN

REEF

(100.00)
*Data as of Mar 2023 Source: CBSL, Bloomberg, First Capital Research 25
 AHUN, PALM and REEF has the lowest Price to Sales
Price to Sale (x)
24.0
22.0 The Price-to-Sales (P/S) ratio is primarily used to assess a company's valuation
20.0 by comparing its stock price to its revenue, to determine whether a stock is
18.0 overvalued or undervalued. A lower P/S ratio suggests potential undervaluation,
16.0
14.0
indicating that investors are paying less for each rupee of a company's revenue.
12.0
10.0 Industry Average: 4.4x
8.0
6.0
4.0
2.0
-

70% of the Hotels are trading below the industry Price to Book value
Price to Book value (X)
12.00
The Price-to-Book Value (PBV) ratio is primarily used to assess whether a stock
10.00 is undervalued or overvalued by comparing its market price (P) to the book
8.00 value of its assets per share (NAVPS). A lower PBV ratio typically indicates that a
stock is potentially undervalued or trading at a discount relative to its book
6.00 value.
4.00 Industry Average: 1.3x
2.00

Source: Bloomberg, First Capital Research 26

 City hotels lead in RevPAR amidst high ARR
Annual Revenue per room (LKR Mn)
50.00
45.00
The Annual Revenue per Room (RevPAR) ratio measures a hotel's revenue
40.00
35.00 generation efficiency on a per-room basis. The highest RevPAR indicates the
30.00 highest amount of revenue generated by a hotel for each individual guest room
25.00 or accommodation unit within the financial year. RevPAR is calculated by
20.00 dividing annual revenue by the total number of rooms available in the period
15.00
being measured.
10.00
5.00
-

AHUN, KHL, and AHPL, with the largest number of rooms, have significant potential for
performance upgrades
Enterprise value per room
350
The Enterprise value per room (EV per room) ratio used to evaluate the overall
300
value of a hotel based on its market capitalization, debt, and the number of
250 rooms it operates. A high EV per room indicates that a hotel has a higher
200 valuation for each room it operates when considering both its market
150 capitalization and debt and suggests that investors have high expectations for
the company's future performance.
100
50
0

Source: CBSL, Bloomberg, First Capital Research 27

FCR Recommendations: Hotel Sector
FIRST CAPITAL RECOMMENDATIONS: HOTEL SECTOR
Annualized
Share price Target Price Target Price 52-week 52-week Capital gain EPS Forward No.of EV per FCR
Stock Stock Code return (%)
22.08.2023 2023E/FY24E 2024E/FY25E High Low (%) FY25E FY25E PER Rooms room Recommendation
FY25E

LKR LKR LKR LKR LKR LKR (x)

AITKEN SPENCE HOTEL HOLDINGS PLC AHUN.N 79.60 80.00 105.00 90.00 48.00 31.9% 20.1% 7.0 11.4 2,627.00 35.09 BUY

JOHN KEELLS HOTELS PLC KHL.N 23.40 26.00 35.00 24.70 14.60 49.6% 30.6% 2.3 10.2 1,476.00 58.95 BUY

HAYLEYS LEISURE PLC CONN.N 25.60 32.00 40.00 28.00 18.00 56.3% 34.4% 5.0 5.1 418.00 11.78 BUY

THE LIGHTHOUSE HOTEL PLC LHL.N 34.40 40.00 50.00 39.80 23.00 45.3% 28.1% 3.3 10.4 90.00 22.22 BUY

THE FORTRESS RESORTS PLC RHTL.N 20.40 25.00 32.00 23.50 13.20 56.9% 34.7% 2.1 9.7 53.00 36.58 BUY

ROYAL PALMS BEACH HOTELS PLC RPBH.N 29.50 35.00 46.00 34.80 20.10 55.9% 34.2% 3.5 8.4 136.00 8.42 BUY

SERENDIB HOTELS PLC SHOT.N 14.10 12.50 20.00 20.00 7.30 41.8% 26.1% 1.1 12.8 341.00 19.29 BUY

DOLPHIN HOTELS PLC STAF.N 35.40 42.00 55.00 39.80 25.20 55.4% 33.9% 4.6 7.7 154.00 13.18 BUY

ASIAN HOTELS AND PROPERTIES PLC AHPL.N 61.00 55.00 86.00 64.50 31.50 41.0% 25.5% 5.7 10.7 847.00 39.79 BUY

Source: Bloomberg, First Capital Research 28

 AITKEN SPENCE HOTEL HOLDINGS PLC

AHUN.N0000 Current Price: LKR 79.60 Fair Value: LKR 105.00 (FY25E) BUY
AHUN is a 74.5% owned subsidiary of Aitken Spence (SPEN.N0000) P/E 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
It is the largest room key operator in the country with operations in Sri Lanka (1,295rooms Estimates (LKR 'Mn)
in 8 properties & 116 rooms in 1 managed properties), Maldives (735 rooms in 5 Revenue 19,055 18,588 5,592 24,571 45,060 51,098 58,944 71,662
properties), Oman (150 rooms in 1 owned property and 191 rooms in 2 managed EBIT 2,735 1,564 -5,189 4,280 7,311 8,527 8,646 12,614
properties) and India (140 rooms in 1 owned property). Net Profit 811 -625 -4,669 624 -288 1,685 2,360 4,567
Adjusted EPS (LKR) 2.4 (1.9) (13.9) 1.9 (0.9) 5.0 7.0 13.6
AHUN records a higher loss of LKR 2.2Bn in 1QFY24 compared to LKR 0.9Bn in 1QFY23 YoY Growth (%) -180% -632% 113% 146% 685% 40% 93%
Valuations
Despite the gradual recovery in both Sri Lankan and South Asian and Middle East
PER (x) 33.6x N/A N/A 42.9x N/A 15.9x 11.3x 5.9x
segments, AHUN reported a net loss of LKR 2.2Bn in 1QFY24 amidst the significant rise in
PBV (x) 1.3x 1.3x 1.7x 1.3x 1.3x 1.2x 1.1x 1.0x
the net operating cost recording at LKR 7.3BBn in 1QFY24. Accordingly, operating profits DPS 1.0 - - - - 1.0 2.5 5.4
turned into losses and fell by 98.3%YoY to LKR 589.4Mn during the quarter compared to DY (%) 1.3% 0.0% 0.0% 0.0% 0.0% 1.3% 3.1% 6.8%
1QFY23. In the midst of high interest rate environment, net finance cost of AHUN Dividend Payout 42.3% 0.0% 0.0% 0.0% 0.0% 20.0% 35.0% 40.0%
witnessed a steep rise of 29.9%YoY to LKR 1.3Bn which hampered the profit growth of ROE 3.7% -3.1% -29.4% 3.1% -1.4% 7.5% 9.9% 17.1%
AHUN.

Relatively faster recovery in South Asian and Middle East Sector to aid AHUN in PER based Valuation FY24E FY25E
outperforming peers Earnings (LKR 'Mn) 1,685 2,360
Generating over 85.5% of revenue from outside Sri Lanka, AHUN is expected to benefit
from relatively faster recovery in tourism in peer countries. Taking in to consideration the No. of Shares ('Mn) 336 336
expected economic recovery and the looming tourists arrivals along with the global EPS 5.0 7.0
economic recovery, we anticipate earnings to soar for FY24 at 1.7Bn and for FY25 at LKR Expected Average PER 16.0x 15.0x
2.4Bn respectively. BUY
Target Price 80 105

29
 JOHN KEELLS HOTELS PLC

KHL.N0000 Current Price: LKR 23.40 Fair Value: LKR 35.00 (FY25E) BUY
P/E 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
80.3% owned Subsidiary of Premiere John Keells Holdings Estimates (LKR 'Mn)
John Keells Hotels PLC is one of Sri Lanka’s largest hotel operators, with a portfolio of 12 resorts Revenue 11,033 9,712 3,661 13,355 28,835 34,921 42,647 61,599
across Sri Lanka (1,022 rooms) and Maldives (454 rooms) holding 1,476 hotel rooms in total. All EBIT 1,087 -764 -4,777 -190 1,742 3,667 6,056 9,240
of KHL hotels are under the brand of Cinnamon and the latest addition during FY21 was Net Profit 817 -1,201 -5,096 -1,203 -321 1,693 3,395 5,700
Cinnamon Bentota Beach which was reconstructed targeting the luxury market. Group Adjusted EPS (LKR) 0.6 (0.8) (3.5) (0.8) (0.2) 1.2 2.3 3.9
reopened Hikka Tranz by Cinnamon in FY22 while construction of Cinnamon Red Kandy (216 YoY Growth (%) -247% -324% 76% 44% 427.6% 100.5% 67.9%
rooms) was under under construction and was planned to be completed by FY25E. Under the Valuations
PER (x) 41.7x N/A N/A N/A N/A 20.1x 10.0x 6.0x
Maldives segment, 4 star hotels were reconstructed/refurbished in FY20 & FY21 with the total
PBV (x) 1.2x 1.2x 1.4x 1.1x 1.0x 1.0x 0.9x 0.8x
of 454 rooms targeting the upper and luxury tourists. DPS 0.2 - - - - 0.2 0.4 0.8
DY (%) 0.6% 0.0% 0.0% 0.0% 0.0% 0.7% 1.8% 3.3%
Topline drop by 3.3%YoY in 1QFY24 hampers profitability Dividend Payout 26.7% 0.0% 0.0% 0.0% 0.0% 15.0% 18.0% 20.0%
KHL increased its losses during 1QFY24 to LKR 960.4Mn cf. LKR 464.2Mn in 1QFY23 impacted by ROE 2.8% -4.2% -20.9% -4.0% -1.0% 5.0% 9.2% 13.8%
escalation of costs. The poor bottom-line performance stemmed largely from drop in top-line,
which declined by 3.3%YoY to LKR 6.0Bn. Meanwhile, with the rise in costs, GP margins
hampered by 530bps to 57.7% largely due to incremental expenses at the Maldivian resort PER based Valuation FY24E FY25E
business (primarily due to the delay in lowering fuel prices in-line with the global crude oil Earnings (LKR 'Mn) 1,693 3,395
prices). Despite the interest rate reduction, net finance cost remained elevated and recorded at No. of Shares ('Mn) 1,456 1,456
LKR 698.2Mn, which further hampered the profitability growth.
EPS 1.2 2.3
Tourist arrivals in Maldives surpassed pre-pandemic levels which benefits higher occupancy Expected Average PER 22.0x 15.0x
Maldives segment contributed over 70% of the group’s revenue and we expect the contribution Target Price 26 35
of this segment towards the profitability to grow over the coming years due to the speedy
recovery of tourism in Maldives which already surpassed the prepandemic levels. On a silver
lining, the prospects for the Sri Lankan Resorts segment remain positive as the recovery in the
segment grows faster than anticipated which translated to pick up in occupancies at Sri Lankan
Resorts segments (55.0% in 1QFY24 cf. 33.0% in 1QFY23). Considering the potential outlook, we
expect KHL to reverse losses and to record profit of LKR 3.4Bn in FY25E surpassing the
prepandemic earnings. BUY
30
HAYLEYS LEISURE PLC
CONN.N0000 Current Price: LKR 25.60 Fair Value: LKR 40.00 (FY25E) BUY
P/E 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
CONN is 67.6% owned subsidiary of export conglomerate Hayleys (HAYL.N) Estimates (LKR 'Mn)
Hayleys Leisure PLC’s hotels, resorts, and boutiques consists of 10 properties with 418 rooms, Revenue 1,644 1,226 362 777 1,532 2,391 2,789 3,427
of which 09 are scattered across the resplendent island of Sri Lanka and the other, a luxurious EBIT 408 -114 -583 -623 -445 586 683 994
resort in the Maldives. Net Profit 300 -266 -790 -898 -824 316 481 749
Adjusted EPS (LKR) 5.6 (1.6) (6.7) (7.7) (7.6) 2.9 4.5 6.9
CONN net loss decreased to LKR 134.1Mn in 1QFY24 (1QFY23: loss of LKR 240.7Mn) YoY Growth (%) -128% -329% -14% 0% 138% 52% 56%
The improved performance during the quarter was largely on the back of declining finance Valuations
PER (x) 4.6x N/A N/A N/A N/A 8.7x 5.8x 3.7x
expenses, which declined by 67.3%YoY to LKR 66.8Mn. Furthermore, group topline for 1QFY24
PBV (x) 0.7x 0.8x 1.0x 1.3x 2.0x 1.7x 1.4x 1.1x
significantly grew by 91.1%YoY to LKR 578.3Mn whilst gross margin improved to 57.1% from DPS 1.8 - - - - 0.4 1.3 2.1
49.5% in 1QFY23. DY (%) 6.8% 0.0% 0.0% 0.0% 0.0% 1.7% 5.2% 8.1%
Dividend Payout 31.5% 0.0% 0.0% 0.0% 0.0% 15.0% 30.0% 30.0%
CONN to witness faster recovery benefitted by occupancies ROE 16.2% -4.8% -25.2% -37.6% -60.2% 19.3% 24.3% 30.0%
CONN underwent some challenging times during 2021 and 2022 owing to the pandemic which
harshly effected the tourists arrivals to meet with a sharp decline. Moving into 2023 resulted
by faster than expected recovery in tourism industry, the economy gradually painting its
recovery from the global pandemic and the economic downturn influenced by various PER based Valuation FY24E FY25E
government strategies and various promotions, the 1QFY24 has shown that the company has Earnings (LKR 'Mn) 316 481
gradually recovered from its bottom. CONN's exposure to the Maldives, which has made a
No. of Shares ('Mn) 108 108
remarkable recovery, reaching pre-pandemic levels, along with its presence in the coastal
segment of Sri Lanka and boutique-style hotels, leads us to anticipate occupancy levels of 70% EPS 2.9 4.5
in FY24E. Additionally, with the rapid resurgence of arrivals, we expect Average Room Rates Expected Average PER 11.0x 9.0x
(ARR) to increase, boosting margins in the coming years. Therefore, considering the company's Target Price 32 40
potential and the sector's outlook, we have upgraded our forecasted net profit to LKR
358.0Mn from LKR 345.0Mn for FY24 and LKR 535.1Mn for FY25E. Hence, we recommend a
BUY rating for the company.

31
 THE LIGHTHOUSE HOTEL PLC

LHL.N0000 Current Price: LKR 34.40 Fair Value: LKR 50.00 (FY25E) BUY
Leading boutique resort targeting luxury market PE 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
The Lighthouse Hotel PLC (LHL) operates three unique properties along the southern coast Estimates (LKR 'Mn)
Revenue 850 510 184 427 731 997 1,146 1,429
of Sri Lanka. Jetwing Lighthouse, the iconic resort of LHL, is one of the renowned architect
EBIT 155 -65 -175 -10 -19 199 252 372
Geoffrey Bawa’s finest masterpieces overlooking the coastline of Galle and operated with
Net Profit 103 -96 -197 -78 -120 101 153 255
Jetwing’s legendary hospitality with 90 rooms. Alongside Jetwing Lighthouse, it also
Adjusted EPS (LKR) 2.2 (2.1) (4.3) (1.7) (2.6) 2.2 3.3 5.5
operates a boutique hotel, Jetwing Kurulubedda, with two private dwellings and four YoY Growth (%) -194% -104% 60% 53% 185% 51% 67%
rooms, and the trendy, easy-going, select-service Hotel J in Unawatuna. Valuations
PER (x) 15.4x N/A N/A N/A N/A 15.6x 10.3x 6.2x
Over 50.0% growth in the top-line resulted in a reduction of the net loss in 1QFY23 PBV (x) 0.5x 0.5x 0.5x 0.5x 0.6x 0.6x 0.5x 0.5x
LHL achieved remarkable top-line growth of 56.1%YoY, reaching LKR 212.6Mn, driven by a DPS - - - - - - 1.3 2.8
significant increase in tourist arrivals. This revenue growth had a positive impact on the DY (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.9% 8.1%
bottom line, as LHL reported a reduced net loss of 44.6%YoY, totaling LKR 24.7Mn in Dividend Payout 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 40.0% 50.0%
1QFY24 compared to a loss of LKR 44.5Mn in 1QFY23. However, administrative expenses ROE 3.5% -3.0% -6.6% -2.5% -4.3% 3.5% 5.2% 8.2%
continued to rise, primarily due to salary adjustments, leading to a substantial 99.0%YoY
increase to LKR 137.6Mn.
PER based Valuation FY24E FY25E
Occupancy rates expected to rise swiftly with higher ARR Earnings (LKR 'Mn) 101 153
The global tourism industry made a robust comeback in 2022, given widespread vaccination No. of Shares ('Mn) 46 46
efforts and the relaxation of international travel restrictions in many countries. EPS 2.2 3.3
Consequently, tourism in Sri Lanka is rebounding faster than expected, with a strong Expected Average PER 18.0x 15.0x
recovery observed in 1H2023. Furthermore, boutique accommodations have the advantage Target Price 40 50
of quickly filling up their occupancy rates while commanding higher ARR. As a result, we
anticipate a further 50% improvement in occupancies, with ARR expected to grow at a 3-
year forward CAGR of 7.6% between FY23 and FY26E. BUY

32
 THE FORTRESS RESORTS PLC

RHTL.N0000 Current Price: LKR 20.40 Fair Value: LKR 32.00 (FY25E) BUY
P/E 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Highly attractive resort targeting upper class tourists
Estimates (LKR 'Mn)
The Fortress Resorts PLC, is a luxury boutique hotel in Galle, Sri Lanka which has invested in its
Revenue 788 489 75 349 435 599 734 945
subsidiary, La Forteresse (Pvt)Ltd. and La Forteresse (Pvt)Ltd, provides lodging, food, beverage and
EBIT 206 4 -235 7 -75 168 235 312
other hospitality industry related activities. The Company accommodations consists of 53 rooms Net Profit 210 27 -176 33 -20 186 236 295
including fortress room, ocean room, beach room, beach splash room, ocean loft suites and fortress Adjusted EPS (LKR) 1.9 0.2 (1.6) 0.3 (0.2) 1.7 2.1 2.7
residence suites. YoY Growth (%) -87% -743% 119% 160% 1038% 27% 25%
Valuations
Bottom line plunges by 108.6%YoY amidst cost escalations PER (x) 10.8x 82.8x N/A 68.4x N/A 12.1x 9.6x 7.7x
RHTL recorded a decline in bottom line of 108.6% for 1QFY24 recording a loss of LKR 3.5Mn resulted by PBV (x) 1.2x 1.3x 1.4x 1.4x 1.4x 1.3x 1.1x 1.0x
the high finance and administrative cost increase by 48.1% YoY. Despite the downturn the top line grew DPS 0.5 4.1 - - - 0.4 0.4 0.4
marginally by 5.7%YoY to 133.2Mn deriving optimism for its prospects of recovery in the future. DY (%) 4.9% 4.9% 0.0% 0.0% 0.0% 3.3% 4.2% 5.2%
Furthermore, Gross Profit margin also displayed a decline YoY recording 59.2% compared to 70.4% in Dividend Payout 52.9% 405.7% 0.0% 0.0% 0.0% 40.0% 40.0% 40.0%
1QFY23. ROE 11.3% 1.5% -11.0% 2.0% -1.2% 10.4% 11.7% 12.7%

Bottomline of the company is forecasted to grow at 27%YoY in FY25E.

While RHTL remain hopeful of a steady recovery of political stability, the group will continue to
strategize accordingly to attract guests, grow business opportunities and create sustainable value for all PER based Valuation FY24E FY25E
stakeholders. RHTL’s growth strategies for the year 2022 and beyond includes identify niche markets Earnings (LKR 'Mn) 186 236
and reach out to the relevant audience through various partnerships with SLH (Small Luxury Hotels of
the World). Also, the company is expecting to widen to the Indian market with special focus on the No. of Shares ('Mn) 111 111
wedding industry. Considering the steady economic recovery RHTL anticipate the operating expenses EPS 1.7 2.1
to ease contributing to a growth in the bottom line. Considering the potential of the company and the
heightened tourists arrivals we anticipate a Net Profit target of LKR 186.2Mn and LKR 263.4Mn for Expected Average PER 15.0x 15.0x
FY24E and FY25E, respectively with an improved occupancy of 50%. BUY Target Price 25 32

33
ROYAL PALM BEACH HOTELS PLC

RPBH.N0000 Current Price: LKR 29.50 Fair Value: LKR 46.00 (FY25E) BUY
Coastal indulgence in the south of Colombo P/E 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Royal Palms Beach Hotels is located in Kalutara, the south of Colombo with exposure to the Estimates (LKR 'Mn)
coastal region. The hotel has 136 rooms in a range of suits such as deluxe, heritage, executive, Revenue 755 618 151 337 671 820 1,127 1,549
rajasthan royal, royal and penthouse. Revenue mainly stems from rooms and food & beverage EBIT 132 59 -159 -44 -63 86 192 294
sales. 28.41% stake of the hotel lies with Tangerine Beach Hotels PLC as at 30th Mar 2023. Net Profit 127 69 -129 -22 -107 116 177 247
Adjusted EPS (LKR) 2.5 1.4 (2.6) (0.4) (2.1) 2.3 3.5 4.9
YoY Growth (%) -45% -286% 83% 379% 208% 53% 40%
Top line take a positive turn as tourists arrivals surge Valuations
RPBH recorded a loss of LKR 43.4Mn in 1QFY24 recording a 370.7%YoY downturn. The decline PER (x) 11.6x 21.3x N/A N/A N/A 12.8x 8.4x 6.0x
is mainly attributed by the higher admin expenses that recorded a 39.6%YoY increase to LKR PBV (x) 0.6x 0.6x 0.6x 0.5x 0.6x 0.6x 0.6x 0.5x
140.0Mn resulted by the inflationary pressure and poor economic sentiment. Despite the DPS 1.0 1.0 - - - - 1.1 2.2
decline in the bottom line, the top line showcased a growth of 15.5%YoY recording LKR DY (%) 3.4% 3.4% 0.0% 0.0% 0.0% 0.0% 3.6% 7.5%
Dividend Payout 39.4% 72.2% 0.0% 0.0% 0.0% 0.0% 30.0% 45.0%
147.6Mn influenced by the improved arrivals mainly attracting the coastal area. Gross Profit
ROE 5.1% 2.8% -5.4% -0.8% -4.6% 4.7% 6.8% 9.1%
margin too showcased a decline of 460bps YoY on the back of increase in cost of sales by
30.6%YoY. However, on a positive note, RPBH recorded a net finance income of LKR 15.3Mn
in 1QFY24.
PER based Valuation FY24E FY25E
Location-specific advantage and upswing in arrivals to favour RPBH Earnings (LKR 'Mn) 116 177
We expect occupancy levels of RPBH to significantly improve in the future given the positive No. of Shares ('Mn) 50 50
developments on the tourism front with reviving arrivals. Accordingly, we estimate occupancy EPS 2.3 3.5
to improve to 55.0% and 60.0% in FY24E and FY25E, respectively while it is expected to
gradually return to pre-pandemic levels in FY25E. Furthermore, location-specific advantage of Expected Average PER 15.0x 13.0x
RPBH considering its close proximity to the Colombo city and large attraction for coastal areas Target Price 35 46
too shall favour in expanding the bottom-line of RPBH. As a result, we estimate earnings of
RPBH to improve to LKR 115.7Mn (+208%YoY) in FY24E and LKR 177.0Mn (+53%YoY) in FY25E.

34
SERENDIB HOTELS PLC

SHOT.N0000 Current Price: LKR 14.10 Fair Value: LKR 20.00 (FY25E) BUY
P/E 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Manifold destinations to offer
Estimates (LKR 'Mn)
Serendib Hotels PLC is one of the leading hotel groups in Sri Lanka which encompasses its Revenue 2,039 1,589 587 636 1,442 2,597 3,209 4,082
offerings in key attractions of the country such as beach, jungle and lagoon. Avani Bentota resort, EBIT 215 29 -412 -233 -133 571 770 939
Club Hotel Dolphin and Hotel Sigiriya are other prominent hotels owned by SHOT. SHOT also Net Profit 39 -138 -456 -560 -452 276 489 666
owns a line of boutique hotels such as Lantern boutique hotel, Ubuntu beach villa and Reveal Adjusted EPS (LKR) 0.1 (0.3) (1.0) (1.3) (1.0) 0.6 1.1 1.5
beach house. Revenue of SHOT is predominantly based on accommodation, food & beverage YoY Growth (%) -457% -230% -23% 19% 161% 77% 36%
Valuations
charges and other hotel operations. The hotel currently consists of 361 rooms offered in the
PER (x) 162.4x N/A N/A N/A N/A 22.8x 12.9x 9.4x
range of standard, villas, suite, deluxe rooms and superior rooms. SHOT is a subsidiary of Eden PBV (x) 2.5x 2.7x 2.9x 2.3x 1.5x 1.4x 1.3x 1.1x
Hotel Lanka PLC, which owns 60.5% of stake as at 31st Mar 2023. DPS - - - - - - - -
DY (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Bottomline on a recovering phase Dividend Payout 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
SHOT experienced a massive 100.0%YoY growth in the bottom-line recording LKR 4.3Mn during ROE 1.5% -5.9% -20.8% -20.3% -11.1% 6.3% 10.1% 12.1%
1QFY24 registering a positive outlook mainly aided by the growth in the top line which was
recorded at LKR 438.4Mn recording a 41.2%YoY growth compared to 1QFY23. Despite the upturn
PER based Valuation FY24E FY25E
in the topline Gross Profit margin experienced a marginal degrowth to 65.3% compared to 71.4%
in 1QFY23. Net finance cost brought in a positive impact on the earnings recording a net finance Earnings (LKR 'Mn) 276 489
income of LKR 75.7Mn compared to the net finance expense of LKR 182.8Mn in 1QFY23 creating No. of Shares ('Mn) 446 446
a favourable impact. EPS 0.6 1.1
Expected Average PER 20.0x 18.0x
Diverse destination offerings to unlock growth Target Price 12 20
We expect earnings to recover in the future as tourist arrivals improve resulting in higher
occupancy levels and diverse locations to play a major role in uplifting earnings. Hence, we expect
occupancy levels to improve to nearly 65% in FY25E. Hence, we estimate the loss to reverse in
FY24E and FY25E and record an earnings of LKR 186.0Mn and LKR 342.0Mn respectively. BUY

35
DOLPHIN HOTELS PLC

STAF.N0000 Current Price: LKR 35.40 Fair Value: LKR 55.00 (FY25E) BUY
4-star inn surrounding the shores of Negombo P/E 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY25E
Estimates (LKR 'Mn)
Club hotel dolphin located in waikkal, Negombo surrounds the Negombo coastal line and is in Revenue 953 729 350 283 576 908 1,201 1,650
close proximity to the Katunayake international airport which makes the hotel an ideal location EBIT 172 47 -62 -82 -117 91 264 462
for tourists on a short vacation. STAF is a subsidiary of SHOT which owns 65.18% stake of the Net Profit 147 44 -33 -25 -103 149 292 437
hotel. The hotel consists of 154 rooms in the range of superior poolside terrace, sea view room, Adjusted EPS (LKR) 2.3 0.7 (0.5) (0.4) (1.6) 2.4 4.6 6.9
superior room, seaside villa, sea view villa and junior suite. YoY Growth (%) -70% -175% 25% 316% 244% 96% 50%
Valuations
PER (x) 15.2x 50.3x N/A N/A N/A 15.0x 7.7x 5.1x
Pressure on GP margin and high OPEX stir earnings negatively PBV (x) 1.1x 1.1x 1.1x 0.8x 0.7x 0.7x 0.7x 0.6x
STAF recorded a significant growth in earnings during 1QFY24 registering a 3596.0%YoY to LKR DPS - - - - - 0.7 1.8 2.8
31.9Mn owing to the progressive tourists arrivals targeting the coastal areas of the country. DY (%) 0.0% 0.0% 0.0% 0.0% 0.0% 2.0% 5.2% 7.8%
Adding a favourable spark, the top line too contributed positively as it gained 49.5%YoY to LKR Dividend Payout 0.0% 0.0% 0.0% 0.0% 0.0% 30.0% 40.0% 40.0%
ROE 7.2% 2.1% -1.6% -0.9% -3.3% 4.7% 8.7% 12.0%
187.6Mn. Furthermore, Gross profit margin displayed a downturn as it was recorded at 58.7% in
1QFY24 compared to 68.0% in 1QFY23 resulted by the uptick in cost of sale which recorded a
92.4%YoY owing to the inflationary pressure. On a positive note, net finance income recorded a
growth of 3359.0%YoY largely contributing to the ascended bottom-line. PER based Valuation FY24E FY25E
Earnings (LKR 'Mn) 149 292
Positive outlook as industry sees growth No. of Shares ('Mn) 63 63
With the steady recovery in global tourism as the pandemic has subsided, we expect occupancy EPS 2.4 4.6
levels of STAF to climb up while domestic tourism is also expected to improve with fuel
availability and peek seasons coming up leading to a positive outlook for STAF. Furthermore, the Expected Average PER 18.0x 12.0x
hotel’s location being in close proximity to the international airport makes the hotel an apt stay Target Price 42 55
for the last days of vacations indicating fast filling up of rooms. Thus, we estimate occupancy to
improve to 45% and 52% in FY24E and FY25E, respectively. Therefore, earnings is expected to
surge by 244.0% in FY24E, reversing the loss from FY23 and record at LKR 149.0Mn while it is
expected to further improve in FY25E to LKR 292.0Mn (+96.0%YoY). Despite relatively low ARR as
a result of heavy competition from hotels in the same location we expect rooms to fill up fast
with the benefit of the parent company SHOT. BUY
36
ASIAN HOTELS AND PROPERTIES PLC

AHPL.N0000 Current Price: LKR 61.00 Fair Value: LKR 86.00 (FY25E) BUY
Asian Hotels and Properties is a 78.6% owned subsidiary of premiere blue-chip John Keells P/E 31 March FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Holdings (JKH.N0000) Estimates (LKR 'Mn)
AHPL comprises of the city hotels segment with 847 rooms and owns two 5-star properties Revenue 7,658 5,560 1,790 4,095 8,417 14,980 19,129 23,130
EBIT 1,083 -28 -1,913 -407 93 2,996 4,208 6,014
under the flagship brand of (Cinnamon) and 56,988sq.ft shopping mall, Crescat Boulevard.
Net Profit 811 -50 -1,781 -510 -278 1,577 2,536 3,681
Adjusted EPS (LKR) 1.8 (0.1) (4.0) (1.2) (0.6) 3.6 5.7 8.3
Top-line expanded by 33.0%YoY in 1QFY24 whilst earnings hampered by operating expenses YoY Growth (%) -106% -3474% 71% 46% 668% 61% 45%
As tourist arrivals surged, AHPL witnessed a remarkable 33.0%YoY growth in its top-line, Valuations
reaching LKR 2.2Bn in 1QFY24. However, a corresponding 33.1%YoY increase in operating PER (x) 33.3x N/A N/A N/A N/A 17.1x 10.7x 7.3x
expenses, totaling LKR 707.5Mn, negatively impacted profitability, resulting in a loss of LKR PBV (x) 0.8x 0.8x 0.9x 0.9x 0.9x 0.9x 0.9x 0.8x
247.9Mn. Meanwhile, despite a substantial 128.4%YoY rise in borrowings, the gradual DPS 1.5 1.0 - - - 1.8 3.4 5.8
decrease in interest rates kept net finance costs stable at LKR 89.9Mn. DY (%) 2.5% 1.6% 0.0% 0.0% 0.0% 2.9% 5.6% 9.5%
Dividend Payout 81.9% -888.6% 0.0% 0.0% 0.0% 50.0% 60.0% 70.0%
Anticipated tourism recovery and a revised Minimum Room Rate are expected to boost ROE 2.5% -0.2% -5.7% -1.6% -1.0% 5.3% 8.3% 11.6%
AHPL's earnings
With the surge in arrivals, AHPL's occupancy rates spiked to an impressive 52% in FY23,
accompanied by a rise in Average Room Rates (ARR) due to the depreciation of the LKR. As PER based Valuation FY24E FY25E
travel restrictions eased and consumer spending shifted from discretionary items to services, Earnings (LKR 'Mn) 1,577 2,536
coupled with strong banquet sales that reached pre-pandemic levels in 3QFY23, we anticipate No. of Shares ('Mn) 443 443
AHPL to reverse previous losses and project profitability of LKR 1,576.7Mn for FY24E and LKR EPS 3.6 5.7
2,535.9Mn for FY25E. Having traded at an average PER multiple of 15.0x during the past 8Yr Expected Average PER 15.0x 15.0x
period, we believe AHPL should re-iterate and trade at a historic average. Hence, we have Target Price 54 86
arrived at a FV of LKR 86.0 for FY25E. Thus, we rate the share BUY

37
 First Capital Valuation Guide: Hotel Sector
Mkt Price (LKR) Shares in Issue Market Cap. Trailing PER (X) PBV (X) Trailing NAVPS
Name Symbol No. of rooms EV per room
18.09.2023 (Mn) (LKR Mn) 4 Qtr 4 Qtr EPS (LKR)
Consumer Services
ASIAN HOTELS AND PROPERTIES PLC AHPL.N0000 63.20 442.8 27,983 N/A 0.9 -0.9 64.7 847 39.8
AITKEN SPENCE HOTEL HOLDINGS PLC AHUN.N0000 78.50 336.3 26,399 N/A 1.4 -3.7 56.3 2627 35.1
BROWNS BEACH HOTELS PLC BBH.N0000 15.80 129.6 2,048 N/A -4.8 -9.4 -3.4 139 46.3
BERUWALA RESORTS PLC BERU.N0000 1.40 600.0 840 N/A -4.3 -0.1 -0.3 136 11.5
BANSEI ROYAL RESORTS HIKKADUWA PLC BRR.N0000 12.80 53.7 688 23.3 2.3 0.5 5.3 30 23.1
CEYLON HOTELS CORPORATION PLC CHOT.N0000 23.30 180.0 4,195 15.5 0.6 3.6 40.7 20 302.5
HIKKADUWA BEACH RESORT PLC CITH.N0000 5.90 284.9 1,681 N/A 0.4 -3.8 13.3 240 24.4
WASKADUWA BEACH RESORT PLC CITW.N0000 3.00 559.9 1,680 N/A 1.0 -1.3 3.0 150 27.6
HAYLEYS LEISURE PLC CONN.N0000 26.80 108.0 2,894 N/A 2.3 -6.1 11.5 418 11.8
EDEN HOTEL LANKA PLC EDEN.N0000 14.40 528.0 7,603 N/A 0.8 -8.2 17.8 373 96.5
GALADARI HOTELS (LANKA) PLC GHLL.N0000 18.90 500.8 9,466 221.9 1.1 0.1 16.2 450 14.9
HOTEL SIGIRIYA PLC HSIG.N0000 47.40 17.6 833 49.9 1.0 0.9 47.2 79 6.4
HUNAS FALLS HOTELS PLC HUNA.N0000 28.00 843.8 23,625 N/A 8.8 -0.5 3.2 33 39.5
JETWING SYMPHONY LIMITED JETS.N0000 10.30 602.2 6,203 N/A 2.0 -0.5 5.3 283 33.7
THE KANDY HOTELS COMPANY (1938) PLC KHC.N0000 9.90 754.3 7,468 N/A 1.0 -0.1 10.1 305 27.5
JOHN KEELLS HOTELS PLC KHL.N0000 23.80 1456.1 34,656 N/A 1.1 -0.6 20.8 1476 58.9
THE LIGHTHOUSE HOTEL PLC LHL.N0000 35.80 46.0 1,647 N/A 0.6 -2.2 59.8 90 22.2
MARAWILA RESORTS PLC MARA.N0000 3.20 351.9 1,126 N/A 1.4 -0.1 2.2 160 9.9
MAHAWELI REACH HOTELS PLC MRH.N0000 13.90 47.1 654 N/A 1.3 -4.4 10.9 112 8.7
THE NUWARA ELIYA HOTELS COMPANY PLC NEH.N0000 1748.00 2.2 3,821 29.0 0.8 60.3 2,126.8 147 16.0
PALM GARDEN HOTELS PLC PALM.N0000 44.00 43.3 1,904 N/A 0.5 -118.7 91.4 735 42.8
PEGASUS HOTELS OF CEYLON PLC PEG.N0000 26.80 33.8 905 N/A 0.6 -3.6 53.3 140 9.7
RENUKA HOTELS LTD RCH.N0000 89.90 40.3 3,623 11.9 0.4 7.6 245.7 100 46.8
CITRUS LEISURE PLC REEF.N0000 7.20 267.2 1,924 N/A 0.9 -4.1 7.9 290 24.5
RENUKA CITY HOTELS PLC. RENU.N0000 393.50 7.0 2,755 N/A 0.3 -73.8 1,238.9 100 13.3
RAMBODA FALLS PLC RFL.N0000 28.50 20.0 570 46.8 1.0 0.6 29.4 63 8.8
THE FORTRESS RESORTS PLC RHTL.N0000 20.80 110.9 2,306 N/A 1.4 -0.6 14.5 53 36.6
ROYAL PALMS BEACH HOTELS PLC RPBH.N0000 26.70 50.0 1,335 N/A 0.6 -3.3 46.0 136 8.4
THE KINGSBURY PLC SERV.N0000 12.00 484.0 5,808 N/A 11.4 -0.3 1.1 229 34.9
SERENDIB HOTELS PLC SHOT.N0000 14.80 446.1 6,602 N/A 1.6 -0.1 9.1 341 19.3
SERENDIB HOTELS PLC SHOT.X0000 10.50 446.1 4,684 N/A 1.1 -0.1 9.1 341 19.3
SIGIRIYA VILLAGE HOTELS PLC SIGV.N0000 58.00 9.0 522 N/A 1.1 -14.6 48.5 120 7.2
DOLPHIN HOTELS PLC STAF.N0000 37.10 63.2 2,346 N/A 0.8 -1.1 49.3 154 13.2
TAJ LANKA HOTELS PLC TAJ.N0000 24.00 139.6 3,351 N/A -2.2 -1.6 -10.2 300 24.2
TANGERINE BEACH HOTELS PLC TANG.N0000 61.70 20.0 1,234 N/A 0.4 -12.8 141.5 179 5.1
TRANS ASIA HOTELS PLC TRAN.N0000 50.00 200.0 10,000 N/A 1.7 -0.5 29.4 346 32.6
Consumer Services Sector N/A 1.2
Market Valuations 11.6 1.0
 This Review is prepared and issued by First Capital Holdings PLC based on
information in the public domain, internally developed and other sources, believed
to be correct. Although all reasonable care has been taken to ensure the contents of
the Review are accurate, First Capital Holdings PLC and/or its Directors, employees,
are not responsible for the accuracy, usefulness, reliability of same. First Capital
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document or related investments and may have acted on or used the information
contained in this document, or the research or analysis on which it is based, before
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 Thank you!
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E: [email protected]

Dimantha Mathew Ranjan Ranatunga Vinodhini Rajapoopathy Tharusha Ashokgar Zaeema Jihan Nethmi Fernando
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