Ascendas Hospitality Trust - DBS Research 2016-08-11: Still value on the table

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ASCENDAS HOSPITALITY TRUST Q1P.SI

Ascendas Hospitality Trust - Still value on the table

• 1Q17 DPU of 1.29 Scts (+1% y-o-y), in line with expectations.
• Higher contribution from Hotel Sunroute Namba partially offset by weaker AUD and CNY.
• Steady growth for remainder of FY17. 

Attractive valuations. 

• We maintain our BUY recommendation and TP of S$0.80. 
• Despite Ascendas Hospitality Trust’s (ASCHT) share price rallying over the past few months following the negative reaction to ASCHT’s rejection of a potential takeover offer earlier this year, we believe that ASCHT still provides compelling value at the current share price. 
• The stock offers an attractive 7.5% yield and trades at a discount to our TP of S$0.80 and latest NAV per unit of S$0.85.

Sydney, Melbourne and Japan hotels to sustain DPU. 

• We believe ASCHT’s Sydney, Melbourne and Japanese hotels, will help sustain a relatively stable DPU outlook despite the headwinds encountered in Beijing, Singapore and Brisbane. This is due to the favourable mix of growing tourist arrivals, decent domestic demand and modest supply of new hotels in Sydney, Melbourne, Osaka and Tokyo.

Acquisition capability enhanced due to low gearing and new chairman with extensive hospitality experience. 

• With gearing of only c.33%, ASCHT is in a strong financial position to pursue debt-funded acquisitions. 
• In addition, we believe the ability to execute on non-organic opportunities is enhanced by the recent appointment of Mr Miguel Ko as chairman of ASCHT. Mr Ko, who is currently the CEO of ASCHT’s sponsor, was formerly the Chairman and President of Starwoods Hotels & Resorts (Asia Pacific Division) and Deputy Chairman and CEO of CDL Hotels International.

Valuation

• We maintain our DCF-based TP of S$0.80. 
• With 9% capital upside and attractive 7.6% yield, we reiterate our BUY call.

Key Risks to Our View

• Significant drop in AUD/JPY and demand/supply imbalance. If the AUD/JPY drops significantly from current levels and there is excess supply in ASCHT’s respective markets, there will be downside risks to our DPU estimates and ASCHT may continue to trade at a discount to book value.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-08-11

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.800 Same 0.800