Far East Hospitality Trust - DBS Research 2016-01-06: Outlook still uncertain

Far East Hospitality Trust - DBS Research 2016-01-06: Outlook still uncertain 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 | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-01-06
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.63 Down 0.71


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