Expect stronger 2H22; valuation stretched; HOLD
1H22 DPU was +>100% YoY/-13% HoH, and c.35% of our FY22 forecast. All
markets saw GOR (gross operating revenue) increase YoY, and (except for
Malaysia) also positive and better GOP (gross operating profit). Sector
fundamentals are improving, with reopening borders offering tailwinds to
demand recovery. We raise DPUs by 5-6% on stronger RevPAR assumptions
and lift our DDM-based TP (COE: 6.2%, LTG: 2.0%) to SGD0.55 from
SGD0.50. FHT’s assets are well-placed, and we see stronger RevPAR in
2H22E. Its recent share price surge suggests a poor risk-reward at 3.5%
FY23 DPU yield and we stay at HOLD. We prefer ART (ART SP, SGD1.16,
BUY, TP SGD1.35) for its more diversified portfolio, concentrated long-stay
assets and upside from capital distributions amid uneven RevPAR recovery.
Better Singapore RevPAR visibility in FY23
Its Singapore portfolio saw GOR rise c.9% YoY/8% HoH in 1H22, while GOP
jumped c.23% YoY/6% HoH. They were driven by better RevPAR, which rose
c.15% YoY/7% HoH to SGD137, as the Intercontinental reopened after
serving the government’s isolation contracts from Oct-Dec 2021.
Singapore’s full relaxation should help strengthen RevPAR in 2H22, and we
maintain our estimates at +25% YoY. We expect visibility to improve in
FY23, as recovery gains momentum, with a lift from corporate travel.
UK leading overseas recovery, Australia falls
RevPAR for its Australia portfolio fell c.7% YoY/48% HoH, with a tapering
of the government’s quarantine business from Dec 2021, and demand hurt
by the Omicron surge in Jan-Feb 2022. We see improving RevPAR, with the
exit of lockdowns and firm forward bookings. Occupancy in the UK rose to
60.6% (from 16.8%/39.4% in 1H21/2H21), while RevPAR jumped >100%
YoY/65% HoH. We expect RevPAR recovery to gain traction in 2H22, from
rising leisure demand and resumption of corporate travel.
Sofitel Sydney sale bolsters balance sheet
The Sofitel Sydney Wentworth divestment, completed on 29 Apr, delivered
SGD23.7m of gains. With proceeds reducing borrowings, gearing should fall
from 42% at end-Mar 2022 to c.34%, while fixed-rate debt rises to c.88%
(from 77.1%). FHT boasts a strong balance sheet with 2.2% borrowing cost,
and a 50bps rise in rates could lower DPU by c.2%. Acquisition prospects
are low in our view, with weaker visibility on RevPAR recovery.