Frasers Hospitality Trust - DBS Research 2016-12-15: Improving stock liquidity

Frasers Hospitality Trust - DBS Vickers 2016-12-15: Improving stock liquidity FRASERS HOSPITALITY TRUST ACV.SI

Frasers Hospitality Trust - Improving stock liquidity

  • 4Q16 DPU down 9% y-o-y due to recent rights issue and weakness in Singapore and UK.
  • Acquisition of Novotel Melbourne to deepen exposure to growing Australian market.
  • Preemptive rights issue to strengthen balance sheet ahead of other investment opportunities.



Enhance liquidity to boost investor interest. 

  • We maintain our BUY call on Frasers Hospitality Trust (FHT) with a revised TP of S$0.75. 
  • While FHT has a portfolio of quality of hotels in key gateway cities and has a successful acquisition track record such as the purchase of Sofitel Sydney Wentworth, investor interest at times has been muted. 
  • We believe the increased free float post the recent rights issue should help allay investor concerns about its trading liquidity, thereby compressing FHT’s yield overtime. 
  • In the meantime, FHT offers an attractive 7.9% yield with earnings upside from acquisitions.


Gearing up for opportunities. 

  • While there is near term dilution from its recent pre-emptive rights issue, FHT is now in a strong position to pursue acquisition opportunities as its gearing is projected to fall to 33-34%. These acquisitions could arise from third parties but also from the clear and visible pipeline from its sponsor (Frasers Centrepoint Limited) and strategic partner (TCC Group). 
  • FHT has first right of refusal (ROFR) over 17 hotels and serviced residences located across Asia, Australia and Europe.


Exposure to growing markets with near term boost from recent acquisitions. 

  • Approximately 45% of FHT’s net property income (NPI) is sourced from the growing markets of Australia (31%) and Japan (14%). FHT’s Australian and Japanese properties over the medium term are beneficiaries of the growing number of foreign tourists.
  • Beyond this, FHT should also benefit from the recent acquisition of Maritim Hotel Dresden in Germany and Novotel Melbourne in Australia.


Valuation

  • After incorporating the Novotel Melbourne acquisition and recent rights issue, we lowered our DCF-based TP to S$0.75 from S$0.88.


Key Risks to Our View

  • FX volatility. A key risk to our positive outlook is a significantly weaker AUD, MYR, JPY, GBP and EUR as Australia, Malaysia, Japan, UK, and Germany contributed c.74% of FHT’s 2016 net property income




Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-12-15
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.75 Down 0.880




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