Frasers Hospitality Trust - DBS Research 2019-07-11: Supply Pressures Clouding Outlook

FRASERS HOSPITALITY TRUST (SGX:ACV) | SGinvestors.io FRASERS HOSPITALITY TRUST (SGX:ACV)

Frasers Hospitality Trust - Supply Pressures Clouding Outlook

  • New supply headwinds in Australia and Japan may leadto DPU volatility in short term.
  • Potential asset disposals above book value may mitigate DPU volatility and hence Frasers Hospitality Trust’s share price.
  • Maintain HOLD on limited earnings visibility.



Range bound.



Where we differ – NAV upside.



Gearing up for opportunities.



WHAT’S NEW - Cloudy outlook


Uncertainty over impact of new supply

  • Frasers Hospitality Trust’s key markets of Sydney and Melbourne (c.40% of NPI) face potentially up to 29% and 45% increase in new room supply over the next few years according to CBRE.
  • Likewise, Frasers Hospitality Trust’s Kobe property (c.10% of NPI) may also face indirect supply headwinds. We understand the Kobe market typically does well when nearby Osaka market is tight and visitors seek a cheaper alternative. Kobe is approximately a 30-minute train ride from Osaka. Based on CBRE, Osaka faces c.30% increase in supply over the next few years.
  • While there are clear demand drivers for the Sydney, Melbourne, and Osaka/Kobe markets in the form on healthy tourist arrivals, the expected large jump in supply may cause temporary supply/demand imbalances. This in turn may lead to earnings/DPU volatility for Frasers Hospitality Trust.


Tweaking DPU estimates

  • On the back of the expected large increase in supply for c.50% of Frasers Hospitality Trust’s portfolio, we have moderated RevPAR assumptions as well as assumed a lower GBP/SGD, resulting in a 1% cut to our FY20-21F DPU.
  • However, we have maintained our DCF-based Target Price of S$0.77 as lower earnings forecast has been offset by our lower assumed risk-free rate (2.5% versus 3.0% previously) and cost of debt (3.0% versus 3.25% previously).


Maintain HOLD with Target Price of S$0.77

  • With a potentially cloudy outlook due to uncertainty over the impact of new supply in Australia and Japan, we believe there is limited near term re-rating catalysts for Frasers Hospitality Trust.
  • Thus, we maintain our HOLD call with a TP of S$0.77.





Mervin SONG CFA DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-07-11
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.770 SAME 0.770



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