Far East Hospitality Trust - DBS Research 2016-08-01: Range bound for now

Far East Hospitality Trust - DBS Research 2016-08-01: Range bound for now FAR EAST HOSPITALITY TRUST Q5T.SI 

Far East Hospitality Trust - Range bound for now

  • 2Q16 DPU of 1.01 Scts (-13% y-o-y) in line with our expectations.
  • Soft results on the back of 7% and 9% decline in 2Q16 hotel and serviced residences RevPAR.
  • Trim FY16-17F DPU by 1% each on weaker than expected performance from serviced residences.



Limited re-rating catalysts. 

  • We maintain our HOLD call with a revised TP of S$0.65. As a Singapore-focused REIT and with competitive pressures in the Singapore hospitality market that are expected to persist, we believe there are limited re-rating catalysts 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 5-6% increase in overall industry room inventory will still put pressure on FEHT’s operations. 
  • We have pencilled in a 5% y-o-y decline in revenue per available room (RevPAR) (1H16 RevPAR dropped 4%), 7% fall in serviced residences revenue per available serviced residence unit (RevPAU), and combined with higher costs of debt, should translate into an 8% 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 well. FEHT’s gearing as at end-Jun-16 stood at approximately 33%.


Valuation:

  • As we roll forward to FY17, we revise our DCF-based TP to S$0.65 from S$0.63.


Key Risks to Our View:

  • Rebound in demand and acquisitions. Our cautious stance on FEHT is premised on a supply imbalance in the Singapore hospitality market. However, a significant rebound in demand, absorbing the new room supply, and FEHT utilising its strong balance sheet, would lead to upside risks to our DPU estimates and TP.




Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-08-01
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.65 Up 0.63


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