Far East Hospitality Trust - CGS-CIMB Research 2019-07-31: A Slow 1HFY19


Far East Hospitality Trust - A Slow 1HFY19

  • Far East Hospitality Trust's 1HFY19 DPU of 1.82 Scts came in below at 45% of our full-year forecast.
  • Hotel segment saw weak RevPAR due to poor corporate demand while the serviced residence segment was stable due to higher leisure demand.
  • Downgrade to HOLD from Add with lower Target Price of S$0.68. Lacks strong catalyst.

1HFY19 results highlights

  • FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s 1H19 DPU of 1.82 Scts, -6.7% y-o-y was below our expectations at 45% of our FY19F forecast. Distributable income fell 4.8% y-o-y to S$34.8m, despite 2.7%/3.0% y-o-y improvements in gross revenue/net property income due to higher finance costs post acquisition of Oasia Hotel Downtown.

Weaker performance from hotel

  • Hotel RevPAR declined 2.1% to S$138 due to
    1. lower occupancy rate of 88.7% in 1HFY19 versus 89.7% in 1HFY18, and
    2. lower average daily rate of 0.9% y-o-y to S$156.
  • While there was an increase in visitor arrivals to Singapore, the weaker corporate segment due to fewer major events dragged the take-up rate. Unlike last year, when some Far East Hospitality Trust's hotels benefited from events such as the Singapore Airshow, Food&Hotel Asia and the Trump-Kim Summit, there were no major city-wide events in 1H19.
  • In addition, economic uncertainties led to lower volume of business travel. Revenue contribution from the corporate segment slipped from 38.5% in 2Q18 to 33.4% in 2Q19.

Serviced residence performance was more encouraging

  • Serviced S$174. Serviced residence did to S$174, aided by higher daily rate (+5% y-o-y to S$212) which offset the lower occupancy (-1.6% pts y-o-y to 81.9%).
  • Serviced residence has been receiving higher volumes from the leisure segment which usually has shorter stays but higher daily rates when compared to the corporate segment.

Hoping for a better 2H

  • Management business for the remainder of this year due to limited new supply. It is hoping to achieve low single-digit RevPAR growth in 2H versus -2.1% in 1H19 by improving room rates. It expects the serviced residence segment to remain stable as it focuses on improving occupancy rates.

Downgrade to HOLD from Add

  • We cut our 3.8%, lowering our RevPAR/RevPAU forecasts.
  • Far East Hospitality Trust’s share price has appreciated by 11% since Jan 19. Given the weak tourist arrivals, we do not expect strong RevPAR/RevPAU performance from Far East Hospitality Trust in 2H. In addition, its high gearing level limits inorganic growth opportunities.
  • We downgrade the stock from Add to HOLD at a lower DDM-based target price of S$0.68.
  • Upside worse-than-expected RevPAR/RevPAU.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-31
SGX Stock Analyst Report HOLD DOWNGRADE ADD 0.68 DOWN 0.710