Frasers Hospitality Trust - DBS Research 2016-08-01: Undervalued global hospitality play

Frasers Hospitality Trust - DBS Research 2016-08-01: Undervalued global hospitality play FRASERS HOSPITALITY TRUST ACV.SI 

Frasers Hospitality Trust - Undervalued global hospitality play

  • 2Q16 DPU of 1.33 Scts (-4% y-o-y) slightly ahead of expectations.
  • Higher units on issue and weaker UK offsetting stronger Australian contribution.
  • Raised FY16-18F DPU by 1-4% on the back of recent acquisition in Germany.


Beyond just Singapore. 

  • We maintain our BUY call on FHT with a revised TP of S$0.88. 
  • While investors should be concerned about its exposure to the Singapore market, we believe investors have overlooked the fact that a significant proportion of FHT’s portfolio (c.46%) is located in markets which are experiencing tailwinds. 
  • In addition, FHT’s core Singapore asset, InterContinental Hotel has completed its extensive renovations (end-Feb-16), which should allow the property to outperform the overall Singapore market.


Exposure to growing markets. 

  • Approximately 46% of FHT’s 9M16 NPI was sourced from the growing markets of Australia (31%) and Japan (15%). FHT’s Australian and Japanese properties are beneficiaries of the growing number of foreign tourists. In fact, FHT's purchase of Sofitel Sydney Wentworth last year deepens its exposure to the growing Sydney hospitality market. 
  • Near term, FHT should receive a boost to earnings from the recent acquisition of 328-room Maritim Hotel Dresden in Germany.


Clear and visible acquisition pipeline. 

  • 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.


Valuation:

  • As we incorporate the latest acquisition in Germany, we raise our DCF-based TP to S$0.88 from S$0.83 based on DCF.


Key Risks to Our View:

  • FX volatility. A key risk to our positive outlook is a significantly weaker AUD, MYR, JPY, GBP and EUR as Australia, Malaysia, Japan, UK and Germany contributed c.74% of FHT’s 9M16 NPI.




Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-08-01
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.88 Up 0.83


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