FAR EAST HOSPITALITY TRUST (SGX:Q5T)
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
- lower occupancy rate of 88.7% in 1HFY19 versus 89.7% in 1HFY18, and
- 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
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LOCK Mun Yee
CGS-CIMB Research
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https://research.itradecimb.com/
2019-07-31
SGX Stock
Analyst Report
0.68
DOWN
0.710
