FAR EAST HOSPITALITY TRUST
Q5T.SI
Far East Hospitality Trust - Outlook still uncertain
Limited re-rating catalyst.
- We maintain our HOLD call with a revised TP of S$0.63.
- As a Singapore-focused REIT and with competitive pressures in the Singapore hospitality market expected to persist, we believe there is limited re-rating catalyst for FEHT in the near term.
Competitive pressures to persist.
- Despite the majority of new hotel supply in Singapore being concentrated within the Singapore River precinct away from FEHT’s hotels, we believe the 6-7% increase in overall industry room inventory will still pressurise FEHT’s operations.
- We have pencilled in a 4% y-o-y decline in RevPAR and combined with higher costs of debt, should translate into a 7% decline in FY16F DPU.
Strong balance sheet.
- While we are cautious on FEHT’s nearterm earnings, there is significant upside to our forecast if FEHT deploys its strong balance sheet.
- FEHT’s gearing as at end-Sep- 15 stood at approximately 31.5%.
Valuation:
Fairly Valued.
- To account for our more cautious stance on the Singapore hospitality market in 2016, we have lowered our RevPAR growth estimates from 0% to -4%.
- Combined with weaker-than-expected 9M15 results, we cut our FY15-17F DPU by 3-11%.
- We have also lowered our DCF-based TP to S$0.63 from S$0.71.
Key Risks to Our View:
Rebound in demand.
- Our cautious stance on FEHT is premised on a supply imbalance in the Singapore hospitality market.
- However, should we experience a significant rebound in demand which absorbs the c.3,900 new rooms being added in 2016, there will be upside risks to our DPU estimates and TP.
Mervin Song CFA
DBS Vickers
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Derek Tan
DBS Vickers
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http://www.dbsvickers.com/
2016-01-06
DBS Vickers
SGX Stock
Analyst Report
0.63
Down
0.71
