Ascendas Hospitality Trust - DBS Research 2017-01-04: Untapped balance sheet

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ASCENDAS HOSPITALITY TRUST Q1P.SI

Ascendas Hospitality Trust - Untapped balance sheet

2Q17 DPU of 1.38 Scts flat y-o-y but up 4% y-o-y on normalised basis.

Some near term headwinds but there are levers to drive earnings.

Low gearing (c.32%) provides capacity to pursue acquisitions.

Attractive yield and discount to book value. 

• We maintain our BUY recommendation and TP of S$0.84. We believe at current levels, Ascendas Hospitality Trust’s (ASCHT) offers a compelling yield in excess of 7% which is based on a 95% payout ratio. 
• In addition, the stock trades at 16% discount to its NAV per unit of S$0.88 and speculated offer price in excess of S$0.80 when several parties were considering a takeover bid for ASCHT earlier this year.

Mitigating factors against known headwinds. 

• While ASCHT’s faces several headwinds in the form of an oversupply in the Singapore and Brisbane hospitality markets and recent strengthening of the JPY, we believe ASCHT can still deliver relatively stable DPUs going forward. This is premised on higher earnings from a renegotiated management contract at its Osaka property, uplift from the recently completed refurbishment at Courtyard by Marriott North Ryde, and still positive increase in tourist arrivals into Australia and Japan boosting demand for ASCHT’s Sydney, Melbourne and Tokyo properties.

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

• With gearing of only c.32%, 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 at S$0.80. 
• With 20% capital upside and attractive 7.9% 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.

Melvin SONG CFA DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-01-04

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.840 Same 0.840