1HFY22 briefing highlights
Maintain HOLD
Post YTLREIT’s 1HFY22 results analyst briefing, we remain cautious on its Australian hotels near-term performances in the absence of the quarantine contracts. Meanwhile, rental income from master lease assets (Malaysian and Japanese properties) are expected to return to normalcy from July 2022, with no changes to the repayment schedule for rental variations adjustments. Our DDM-based TP of MYR0.95 (Ke: 8.5%) and earnings forecasts are unchanged. We prefer Axis (AXRB MK, BUY, TP: MYR2.30).
Remain cautious on Australian portfolio
Earnings for its Australian hotels in 1HFY22 were higher YoY largely due to rate enhancement and guaranteed income from the quarantine contracts by respective district governments. However, we note that these contracts are now gradually expiring in 3QFY22, as the mandatory quarantine restrictions are easing in several states. Notwithstanding that, we believe this to be cushioned by the re-opening of the international border from 21 Feb, whereupon we expect hotel occupancy and room rates to gradually
pick up. The Australian portfolio contributed 28% of YTLREIT’s 1HFY22 NPI.
Acquisition outlook
We do not expect any new asset acquisitions to happen in the immediate term. Our near-term earnings are mainly supported by stable rental income from its Malaysian and Japanese properties under master lease arrangements. YTLREIT’s end-2QFY22 gross gearing of 0.43x provides debt headroom of c.MYR2b (up to 0.6x until end-2022) for future acquisitions.
Expect strong DPU yield in FY23-24E
According to management, there are no changes to the repayment schedule with regards to the rental variation adjustments of master lease assets (Fig 1). We expect these rental streams to return to normalcy from July 2022 onwards, together with repayment of rental variation over FY23- As such, we expect a strong net DPU yield of 8.7%-10.4% in FY23-24E.