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Global Premium Hotels Limited - Why did it over-provision tax liabilities?

Profit would have declined if not for a reversal of tax provisions. Though revenue is showing an increasing trend, margins are going the opposite way.

17/2/2015 – Global Premium Hotels believes the hospitality and tourism industry in Singapore is likely to face keener competition with new supply of hotel rooms which will further depress the occupancy and room rates.

OCBC Research maintained its HOLD rating with a target price of S$0.33.

According to OSK DMG Research, the stock lacks imminent catalysts, and so it recommends avoiding it, even though it is priced at half its Net Asset Value (NAV).

In fact, it prefers exposure to the sector via Hotel Properties Limited, due to the redevelopment potential of its Singapore hotels, and Mandarin Oriental for its diversified earnings stream and attractive yield of 5%.

Singapore, besides being rated by Lonely Planet as the No. 1 country to travel to in 2015, has a number of exciting events lined up for the year, such as the SG50 Celebrations and the 28th SEA Games to be held in mid-year.

All these should help lift the tourist arrivals and mitigate any impact arising from the new supply of rooms, says the company.

The company just announced earnings for FY14:

Revenue: +1.5% to S$61.5 mln
Profit: +9.7% to S$21.3 mln
Cash flow from operations: S$5.6 mln vs S$1.7 mln
Dividend: 0.50 cents per share vs 0.26 cents per share

Hotel room revenue increased by 1.5% to S$60.6 mln due to a contribution of S$6 mln from the Parc Sovereign Hotel – Tyrwhitt in Singapore which commenced operations in early June 2014.

However, this increase was partially offset by a lower contribution from Fragrance Hotel – Pearl, which was closed temporarily in H1 2014 for renovations.

It was also offset by lower revenue from Fragrance Hotel – Elegance following its closure in Q4 2013, after its tenancy agreement expired.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question
Question

1. Why did it over-provision tax liabilities?

Global Premium Hotels' profit for the year grew 9.7% to S$21.3 mln, but this was after accounting for a tax credit of S$4.4 mln.

The reason it gave was "…the reversal of over-provision of income tax in prior years and lower provision of income tax in FY 2014 as a result of lower profit before income tax."

Now, in FY12 and FY13, over-provisions amounted to just S$192,000 and S$43,000 respectively.

In fact, the tax reversal amount is almost equal to income tax expense of S$4.1 mln and S$4.5 mln for FY12 and FY13 respectively.

What was this over-provision about? And how many financial years are being considered as "prior years"?

Question
Question

2. How will its effective tax rate change in future?

The Group's effective tax rates were 19% for FY11, 19.5% for FY12 and 17.6% for FY13.

(Read the full story to get all 5 questions)

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.


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