Frasers Hospitality Trust - Maybank Kim Eng 2020-01-24: From Value To Growth?


Frasers Hospitality Trust - From Value To Growth?

Strong 1Q20, in line; maintain BUY

  • Our forecasts are unchanged following FRASERS HOSPITALITY TRUST (SGX:ACV)'s in-line 1Q20 with DPU at SGD1.33cts (+6.1% y-o-y, +14.1% q-o-q), driven by stronger performances across its overall portfolio. See Frasers Hospitality Trust Announcements. Its Singapore RevPAR recovery remains on track while margins in Australia should rise further on cost efficiencies.
  • Our DDM-based Target Price is unchanged (COE: 7.6%, LTG: 2.0%, see Frasers Hospitality Trust Target Price).
  • Frasers Hospitality Trust remains undemanding on valuations both against peers at 6.5% div yield and 0.9x FY19E P/B. We see catalysts from Singapore’s RevPAR growth traction in 2020 on stronger corporate demand, a potential portfolio reshuffle, and further acquisition opportunities in Europe, supported by its low 35.5% gearing and sponsor’s growing AUM. BUY.

SG recovery underway

  • The recovery at its Singapore assets gained traction in 1Q20 as GOR/GOP rose +2.6%/+2.0% y-o-y, following a turnaround in 4Q19 with GOR/GOP at +5.1%/+11.1% y-o-y. This was helped by better occupancies (up y-o-y from 82.0% to 86.7%) and a stronger 6.9% y-o-y jump in RevPAR, up from +4.9% y-o-y in 4Q19, backed by stronger leisure and corporate demand.
  • With the competitive supply pressures in the Bugis micro-market having subsided, we maintain our expectations of a +3-5% RevPAR improvement over FY20- 21, to be further strengthened by easing supply.

Australia yields improved, supply still a drag

  • Management has delivered on boosting yields of its Australian assets, with GOR/GOP rising 1.9%/5.4% y-o-y. Frasers Hospitality Trust's Australian portfolio’s contribution contracted further y-o-y from 47.0% and 42.0% to 45.0% and 41.0% of its overall revenue and NPI.
  • While occupancy improved from 88.7% to 90.3%, RevPAR declined by 3.4% y-o-y, against a weaker trading backdrop. We continue to factor in a 5% y-o-y RevPAR decline in FY20-21 against supply-side headwinds, but we see improving demand and RevPAR for its UK properties helped by a weak currency, and a recovering GOP in Japan.

Capital recycling initiatives require patience

  • Frasers Hospitality Trust's balance sheet remains strong at 35.5% leverage with average cost of debt down to 2.4% and debt maturity extended to 4.38 years as of end- Dec 2019 from earlier refinancing efforts. Its global hospitality portfolio offers potential AEI growth levers (at Kobe’s Crowne Plaza, London’s Park International, and Melbourne’s Novotel Collins), and expansion opportunities from both its sponsor’s ROFR assets and third-party deals.
  • See Frasers Hospitality Trust Analyst Reports; Frasers Hospitality Trust Dividend History.

Chua Su Tye Maybank Kim Eng Research | 2020-01-24
SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800