DBS Group Research analysts Geraldine Wong and Derek Tan are keeping their “buy” call on Frasers Hospitality Trust (FHT) as they view the REIT as “attractive” given its current price at 0.9 times net asset value (NAV), which is below replacement costs.
“The current price, which is 30% below its pre-Covid level, is at an attractive level for an overlooked stock. Its prospective FY2022 yield of 8.0% is also appealing,” they write in a May 3 report.
The REIT is also a “laggard no more” as its price is catching up with its peers, supported by a robust compound annual growth rate (CAGR) of over 70% in distributions per unit (DPUs) over the medium term.
FHT’s portfolio of Australia and European hotels with an exposure of 50% should start to see better prospects on the back of loosening domestic travel restrictions.
FHT’s Singapore portfolio – with a 35% exposure – sees incrementally strong earnings come 2HFY2021.
However, the analysts have cut their earnings estimates for the FY2021, to reflect a delay of recovery trend going into FY2022 onwards, however, they acknowledge that their figures are generally higher than consensus’ estimates on better expectations in the medium term.
On the back of the cut in earnings estimates, the analysts have also reduced their target price to 65 cents from 70 cents previously.
To this end, Wong and Tan see the REIT as a candidate for privatisation.
“Given the sponsor’s significant 62% stake in FHT and relative illiquidity versus peers, we 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 4,000 room keys and landmark Singapore hotels,” they write.
Units in FHT closed flat at 54.5 cents on May 6.
