Frasers Hospitality Trust - DBS Research 2017-05-30: Poised For Growth

Frasers Hospitality Trust - DBS Vickers 2017-05-30: Poised For Growth FRASERS HOSPITALITY TRUST ACV.SI

Frasers Hospitality Trust - Poised For Growth


Enhanced liquidity to boost investor interest. 

  • We maintain our BUY call on Frasers Hospitality Trust (FHT) with a TP of S$0.85.
  • While FHT has a portfolio of quality of hotels in key gateway cities and a successful acquisition track record such as the purchase of Sofitel Sydney Wentworth, investor interest at times has been muted due to its relatively small market cap. 
  • 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 over time. 
  • In the meantime, FHT offers an attractive 7.0% yield with earnings upside from acquisitions.


Where we differ – Strong DPU recovery on the horizon. 

  • While consensus is expecting a modest 2% DPU recovery in FY18, we believe this understates the upside potential for FHT. 
  • Our more bullish view is underpinned by expectations of a recovery in the Singapore hospitality market (4% y-o-y revenue per available room (RevPAR) growth) which the market is sceptical about, as well as full year contributions from the recent acquisitions of Novotel Melbourne and Maritim Hotel Dresden, and continued growth at its Sydney properties given favourable demand and supply fundamentals.


Gearing up for opportunities. 

  • Post rights issue, FHT is now in a strong position to pursue acquisition opportunities as its gearing stands at 33-34%. These acquisitions could arise from third parties as well as the clear and visible pipeline from its Sponsor (Frasers Centrepoint Limited) and strategic partner (TCC Group).
  • FHT has right of first refusal (ROFR) over 17 hotels and serviced residences located across Asia, Australia and Europe.


Valuation

  • We maintain our DCF-based TP of S$0.85. 
  • With 21% capital upside and 7.3% yield, we reiterate our BUY call.


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/ 2017-05-30
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.850 Same 0.850



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