DBS Group Research analysts Geraldine Wong and Derek Tan maintain a “buy” rating on Frasers Hospitality Trust (FHT) with an unchanged target price of 65 cents.
FHT continues to look attractive from a valuation standpoint at 0.7 times price-to-net asset value ( P/NAV) on pandemic level valuations or -1 standard deviation from its historical trading range.
“We estimate a 136% y-o-y growth in dividends-per-share on a low base in FY2021,” say Wong and Tan.
Although the divestment of Sofitel Wentworth results in a temporary income gap, capital top-ups are likely, according to the analysts. “The recent divestment of Sofitel Sydney Wentworth on a 12% premium to asset valuation will potentially go into partial debt repayment (from 42% to 34% gearing) and potentially capital top-ups in the coming years, to potentially offset the loss of income from the asset,” say Wong and Tan. “Any near-term acquisitions will serve as upside to our conservative estimates.”
“We have adjusted our estimates to account for softer projected normalisation of travel with RevPAR at c.50% of 2019 levels in 2021,” they added.
Additionally, given the sponsor’s significant 62% stake in FHT and relative illiquidity vs peers, the analysts believe that the stock remains an attractive takeover target, as it costs less than $500 million to take it private and gain control of its portfolio of approximately 4000 room keys and landmark Singapore.
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FHT’s FY2021 revenue of $85.5 million was in line with estimates, where NPI and distributable income of $57.6 million (-3.7% y-o-y) and $21.0 million (-29.7%) y-o-y made up 94% and 65% of the analysts’ estimates respectively.
“The lower gross revenue and NPI were due to partial closure of six UK properties for around three months and Westin KL for around eight months for the year,” say Wong and Tan.
On a y-o-y comparison, FY2020 was boosted by around five months pre-Covid-19 operating figures from October 2019 to March 2020 and constituted a relatively higher base.
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Some risks that the analysts anticipate include the development of the Omicron variant causing a longer-than-expected delay to global border reopening.
At 1:16pm, shares in FHT are trading 0.5 cents up and 1.06% higher at 48 cents.
