CIMB Securities 20150806: Far East Hospitality Trust - 2Q15 Results. Fairly valued. Upgrade to HOLD.

FAR EAST HOSPITALITY TRUST Q5T.SI

Fairly valued

FEHT’s 2Q15 results were in line with expectations, with 2Q and 1H’s DPU accounting for 24% and 45% of our full-year forecast, respectively.
Given the dampened outlook for the hospitality sector, we lower our FY15-16 DPU forecasts by 2.7-6.0%.
However, after its c.19% share price correction since April, we believe FEHT is fairly valued.
We upgrade our call from reduce to Hold with a lower DDM-based target price of S$0.70.

Far East Hospitality Trust (FEHT) posted gross revenue of S$28.7m (-3.0% yoy) and DPU of 1.16 Scts (-6.5% yoy) for 2Q15.
Hotel RevPAR was reported at S$150 (-2.1% yoy) while serviced residences RevPAU came in at S$218 (-5.1% yoy).
Stronger commercial lease earnings, which rose by 1.1% yoy to S$5.9m in 2Q15, partially offset this weakness.

In 2Q15, both FEHT’s hotels and serviced apartments increased their occupancies by 6.6% yoy and 2.1% yoy, respectively.
However, ADR for both segments dipped by 9.6% yoy and 7.3% yoy on the back of a slow tourism landscape in Singapore and soft corporate demand.
Furthermore, with stiffer competition, management was forced to lower rates in an attempt to boost occupancy and maintain market shares.
During the briefing, management guided that occupancies of FEHT’s portfolio remained firm in July and it will attempt to lift ADR to improve RevPAR. Though this is a good strategy, we believe that there may be limited room to raise rates given the high supply of hotel rooms coming online in 2H - largely a result of the start of Hotel Boss (1,500 rooms) in 4Q15.
Though not a direct competitor, we believe the increased supply of rooms in a sluggish tourist market could result in keener competition, which in turn could limit the ability to raise ADR.

In our view, the hospitality landscape will remain competitive in the near term on the back of continually sluggish visitor arrival rates, weak foreign currencies and high supply of hotel rooms in 2015.
On this basis, we cut our FY15-17 DPU forecasts by 2.7-7.3%.
However, with the recent steep share price correction of c.19%, we believe FEHT, currently offering FY15/16 yield of 7.1%/7.2%, is fairly valued at this juncture.
On this basis, we upgrade FEHT to a Hold from a reduce.

PANG Ti Wee | LOCK Mun Yee | TAN Xuan CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-06

HOLD Upgrade REDUCE 0.70 Down 0.75