FAR EAST HOSPITALITY TRUST
Q5T.SI
Far East Hospitality Trust - Outlook still cloudy
- 1Q16 DPU of 1.08 Scts up 1% y-o-y was in line with expectations
- Flat RevPAR for hotels but serviced residences still weak
- Positive initial signs but outlook still cloudy
Limited re-rating catalysts.
- We maintain our HOLD call with TP of S$0.63.
- As a Singapore-focused REIT and with competitive pressures in the Singapore hospitality market that are expected to persist, we believe there is limited re-rating catalyst for Far East Hospitality Trust (FEHT) in the near term.
Competitive pressures to persist.
- Despite the majority of new hotel supply in Singapore largely concentrated within the Singapore River precinct away from FEHT’s hotels, we believe the 6-7% increase in overall industry room inventory will still put pressure on 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 near term earnings, there is significant upside to our forecast if FEHT deploys its strong balance sheet.
- FEHT’s gearing as at end-Dec-15 stood at approximately 32.7%.
Valuation:
- Fairly Valued.
- With FEHT trading close to our DCF-based TP of S$0.63, we maintain our HOLD call.
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 absorbing the c.3,900 new rooms 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
|
http://www.dbsvickers.com/
2016-04-27
DBS Vickers
SGX Stock
Analyst Report
0.63
Same
0.63
