Frasers Hospitality Trust - Maybank Kim Eng 2018-10-29: Value Play

FRASERS HOSPITALITY TRUST (SGX:ACV)

Frasers Hospitality Trust - Value Play

Frasers Hospitality Trust (FHT)’s 4Q18 DPU of SGD1.22ct (-4.8% y-o-y, +8.9% q-o-q) was in line with both consensus and our estimates.
Stable performance for its properties in Singapore and Germany mitigated the weaker results across the rest of its portfolio. Its Singapore assets are positioned for a recovery in the hospitality sector, even as we expect near-term RevPAR growth to be tempered by competitive supply-side pressures within its micro-market.
We lower DPUs 1-2% by reducing Australia RevPARs and introduce FY21 estimates. Our DDM-based Target Price remains unchanged at SGD0.80 (COE: 7.6%, LTG: 2.0%).

Valuation remains undemanding versus history and peers in our view at 0.8x FY19E P/B, and low 33.6% gearing supporting acquisition growth upside.
BUY.

Frasers Hospitality Trust’s Australia and Japan properties were weaker while the Westin KL saw a sharper -14.8% y-o-y and -21.6% y-o-y in gross operating revenue (GOR) and profit (GOP) on slow corporate demand. In contrast, the Maritam Hotel Dresden reported +4.6% y-o-y in GOR and +3.4% y-o-y in GOP.
We see better visibility in Europe for its demand-supply balance.
We believe there are opportunities for management to undertake a meaningful portfolio repositioning exercise given supply-side headwinds in Australia, now at a-third of its AUM (according to Horwath, the majority of 4,600 new rooms from 2019-2022 will open in 2019-20) and stronger growth fundamentals in Europe, especially being supported by its sponsor’s growing AUM.

Its Singapore portfolio remained stable, with GOR/GOP up 0.2% y-o-y/1.5% y-o-y. This was driven by increased occupancies (from 88.1% to 90.3%) at the two properties and operating efficiency at Fraser Suites, even as RevPARs fell 1.3% y-o-y on lower average daily rates for InterContinental.
The competitive pressure on RevPAR is likely to persist in the near term with room supply from new players (Andaz and JW Marriott) in the Bugis micro-market.

Earlier-than-expected pick-up in corporate demand.
Better-than-anticipated RevPAR.
Accretive acquisitions where cap rates exceed cost of funds, or divestments at low cap rates which unlock asset values.

Sizeable increases in hotel and SR room supply without commensurate growth in demand.
Deterioration in global economy, resulting in declines in RevPARs.
Significant volatility in FX rates could impede hedging efforts and affect DPU.
Sharper-than-expected rise in interest rates could increase cost of debt and hit earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-10-29

SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800