Maybank Securities analyst Chua Su Tye has kept a “hold” rating on Frasers Hospitality Trust (FHT) with an increased target price of 55 cents from 50 cents.
FHT’s Singapore portfolio saw gross operating revenue (GOR) rise approximately 9% y-o-y in 1HFY2022 ended March, while gross operating profit (GOP) jumped approximately 23% y-o-y.
This was driven by better revenue per available room (RevPAR), which rose approximately 15% y-o-y to $137, as the Intercontinental reopened after serving the government’s isolation contracts from October 2021 to December 2021.
Chua expects Singapore’s full relaxation of Covid-19 measures to strengthen RevPAR in 2HFY2022. “We maintain our estimates at 25% up y-o-y,” he says, “we also expect visibility to improve in FY2023, as recovery gains momentum with a lift from corporate travel.”
For FHT’s Australia portfolio, RevPAR fell approximately 7% y-o-y, with a tapering of the government’s quarantine business from Dec 2021, and demand hurt by the Omicron surge in Jan-Feb.
“We see improving RevPAR, with the exit of lockdowns and firm forward bookings,” Chua says.
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Occupancy in the UK rose to 60.6% from 16.8% in 1HFY2021 and 39.4% in 2HFY2021, while RevPAR jumped to over 100% y-o-y. “We expect RevPAR recovery to gain traction in 2HFY2022, from rising leisure demand and resumption of corporate travel,” the analyst says.
Moreover, the Sofitel Sydney Wentworth divestment completed on Apr 29 delivered $23.7 million of gains.
With proceeds reducing borrowings, the analyst foresees gearing to fall from 42% at end-Mar to approximately 34%, while fixed-rate debt rises to approximately 88% from 77.1%.
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At this juncture, FHT boasts a strong balance sheet with 2.2% borrowing cost, and a 50 basis points (bps) rise in rates could lower DPU by approximately 2%.
“Acquisition prospects are low in our view, with weaker visibility on RevPAR recovery,” says Chua.
FHT’s 1HFY2022 DPU was up over 100% y-o-y, and approximately 35% of Chua’s FY22 forecast. All markets saw GOR increase y-o-y, and better GOP with the exception of Malaysia.
On this Chua has raised his DPU estimates by 5-6% on stronger RevPAR assumptions.
However, the analyst also says that he prefers Ascott Residence Trust (ART) for its more diversified portfolio, concentrated long-stay assets and upside from capital distributions amid uneven RevPAR recovery.
On the whole, Chua finds that FHT’s assets are well-placed, and sees stronger RevPAR in 2HFY2022, though its recent share price surge suggests a poor risk-reward at 3.5% FY2023 DPU yield.
As at 2.51pm, units at FHT are trading flat at 66 cents.
Photo: FHT
