Frasers Hospitality Trust (FHT) ACV sports an “attractive entry price”, at 0.7x price to net asset value ratio (P/NAV), even after its gross profit doubled across half its portfolio markets in 1HFY2023 ended March, note DBS Group Research analysts Geraldine Wong and Derek Tan.
“FHT’s geographical markets continue to see strong h-o-h recovery, led by Singapore, Australia and Germany. FHT’s corporate-positioned hotels in Singapore will continue to see further traction in return of corporate travel as a strong MICE calendar unfolds this year. Overseas low-hanging markets such as Japan and Germany will also depend on a return of corporate events in their respective submarkets to drive gross profits,” write the DBS analysts. MICE refers to meetings, incentives, conferences and exhibitions.
In a May 2 note, Wong and Tan maintain “buy” on FHT with an unchanged target price of 58 cents, which represents a 20% upside.
Last week, FHT reported a distribution per stapled security (DPS) of 1.2649 cents for the 1HFY2023 ended March 31, 79.9% higher than the DPS of 0.7039 cents in the same period the year before.
1HFY2023 reported DPS is ahead of full-year DPS estimates of 2.25 cents, say Wong and Tan.
During the half-year, gross revenue increased by 41.1% y-o-y to $62.2 million while net property income (NPI) grew by 42.9% y-o-y to $45.2 million. As a result of the higher gross revenue and NPI, income available for distribution increased by 79.9% y-o-y to $27.1 million.
See also: FHT reports 79.9% higher DPS of 1.2649 cents for 1HFY2023 due to recovery in travel
FHT’s portfolio of 15 quality assets spans prime locations across nine key cities in Asia, Australia and Europe, note the analysts. “FHT’s portfolio will further ride on the recovery within its Asia-Pacific (APAC) exposure, which makes up 77% of its exposure on an NPI level… FHT has a 74% exposure to Chinese-destination markets, where we see it to drive further growth prospects.”
On the second leg of MICE recovery, FHT’s MICE-positioned hotels in Singapore, Australia and Japan will continue to see an occupancy upside coming from corporate travel, say the analysts, which continues to be a step behind the recovery in leisure.
Meanwhile, gearing for the period ended at 35% with cost of borrowing at 2.9%.
See also: Maybank upgrades FHT to 'buy' with lower TP of 54 cents
FHT’s divestment of Sofitel Sydney Wentworth in April 2022 was, in hindsight, a good move that helped strengthen the balance sheet, albeit forming an income hole in the quarters post-divestment, say Wong and Tan. “FHT’s gearing has improved substantially y-o-y from 42% to the current 35%. Average cost of debt is likely to stay stable for 2HFY2023 on the back of no remaining renewals for the rest of the financial year.”
Wong and Tan highlight that most of the lease renewals in the coming years will happen in FY2024, where 38% of total debt will be up for renewals.
According to Wong and Tan, key risks to DBS’s thesis would be a slower-than-anticipated recovery in MICE-dependent overseas markets, foreign currency fluctuations and high refinancing cost of debt in FY2024.
As at 11.58am, units in FHT are trading flat at 49 cents.
