Frasers Hospitality Trust - DBS Research 2016-01-06: Unfairly overlooked

FRASERS HOSPITALITY TRUST ACV.SI

Frasers Hospitality Trust - Unfairly overlooked

We upgrade our call on FHT to BUY with a TP of S$0.83.
While investors should be concerned about its exposure to the Singapore, we believe investors have overlooked the fact that the majority of the FHT’s portfolio (c.60%) is located in markets which are experiencing tailwinds.
In addition, FHT’s core Singapore asset, Intercontinental hotel is about to complete its extensive renovations (end-Feb-16), which should allow the property to outperform the overall Singapore market.

Approximately 60% of FHT’s FY15 income was sourced from the growing markets of Australia (18%), Japan (14%) and UK (27%). FHT’s Australian and Japanese properties are beneficiaries of growing foreign tourists.
In fact, FHT's recent purchase of Sofitel Sydney Wentworth deepens its exposure to the growing Sydney hospitality market.
Meanwhile, FHT’s UK portfolio should benefit from still healthy tourist arrivals and corporate demand.

Through the strong support of its sponsor (Frasers Centrepoint Limited) and strategic partner (TCC Group), FHT has a clear and visible acquisition pipeline. This robust pipeline consists of 17 hotels and serviced residences located across Asia, Australia and Europe.

To account for our more cautious stance towards the Singapore hospitality market, we trimmed our FY16-17F DPU by 3-5%.
However, we have maintained our TP at $0.83 as we roll forward our DCF-valuation to FY16.
With c.20% total return on offer over the coming 12 months (8% upside plus 7.9% yield), we upgrade our call to BUY.

A key risk to our positive outlook is a significantly weaker AUD, MYR and JPY as Australia, Malaysia and Japan contributes c.40% of FHT’s NPI.
In addition, there will be downside risk to our earnings estimates, if the renovations at Intercontinental Singapore are unsuccessful.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-01-06

DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 0.83 Same 0.83