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3 Reasons That May be Behind Mandarin Oriental International Limited’s Recent Price Surge

Hotel chain operator Mandarin Oriental International Limited (SGX:M04) was one of the hottest stocks in May. According to stock exchange operator Singapore Exchange Limited (SGX: S68), Mandarin Oriental’s shares gained 9.6% in that month alone. It was also the top-performer in May among the 10 largest consumer discretionary stocks in Singapore. Here are three reasons that may be driving the surge.

Aggressive expansion plans for the future

Mandarin Oriental currently operates 31 hotels and eight residences in 21 countries and territories. Its portfolio includes the Mandarin Oriental Hyde Park in London and Mandarin Oriental in Singapore. However, the company, as with most successful hotel chains, had humble beginnings.

Its story started more than 50 years ago with the opening of The Mandarin in Hong Kong in 1963. It would take more than 10 years before the then management team decided to expand its business by acquiring The Oriental in Bangkok in 1974. The pair of hotels subsequently combined to form the Mandarin Oriental group.

Since then, Mandarin Oriental has expanded aggressively to its current portfolio. But the company is not done growing just yet. It has announced plans to expand its geographical footprint further by opening 15 hotels and nine residences in 13 more countries in the next five years. This will also include Mandarin Oriental’s maiden entry into Honolulu, Hawaii and Australia.

Broad-based growth in revenue per available room in 2017

In 2017, Mandarin Oriental reported strong growth in revenue per available room (RevPAR) in most of its geographical segments. RevPAR is a common metric used in the hospitality sector to measure a hotel’s ability to maximise its room capacity and its pricing power.

In Asia, the company’s RevPAR increased by 8% in 2017, with Mandarin Oriental Bangkok leading the way with a 14% increase due to a stronger currency and improved visitor arrivals. In Europe, despite the renovation of Mandarin Oriental Hyde Park, the company’s RevPAR still increased by 4% like-for-like. In the Americas, RevPAR improved by 1%. The overall RevPAR growth for Mandarin Oriental’s entire portfolio came in at a healthy 5%.

This momentum is expected to continue as the hospitality sector in most markets is expected to expand again in 2018.

Sale of The Excelsior, Hong Kong can reward shareholders

In June 2017, Mandarin Oriental announced that it was considering selling the hotel, The Excelsior, Hong Kong. However, in September 2017, the company announced that none of the offers on the table met its expectation and that it is now considering its options for the property.

If a sale eventually does materialize, it could free up significant capital for the company, which could then be used to reward shareholders through a special dividend or to pay off debt. Market participants have responded positively by pushing the company’s share price up from S$1.84 prior to the initial sale announcement back in June, to the current level of S$2.46.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has a recommendation on Mandarin Oriental International Limited. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.