FY23 results powers ahead – Two leaps forward with return of MICE
- FY23 revenue rose 29% y-o-y to S$123.2m, full-year DPS rose 49% y-o-y to 2.4426Scts, ahead of estimates
- RevPAR across all major markets surpassed pre-Covid levels; optimism going into FY24F on strong MICE line-up in 1H24 with concerts and Singapore Air Show
- Full-year valuation uplift of 1.7% y-o-y in SGD terms, improvement in cash flows to more than compensate for cap rate expansions
- Maintain BUY with higher TP of S$0.62, forward FY24F yields of 5.1%
Full-year DPS of 2.4426 Scts ahead of estimates. Frasers Hospitality Trust reported full-year FY23 revenue of S$123.2m (+28.5% y-o-y). Net property income for the year rose a strong 30.1% y-o-y to S$90.5m, while distributable income rose 49% y-o-y to S$52.3m. The strong operating performance was on the back of RevPAR improvements across all markets on a y-o-y basis and supported by lower cost of debt in 1H23. FY23 DPS of 2.4426Scts was 49% higher y-o-y, and ahead of our estimates.
Gross operating revenue above pre-Covid levels for all markets except Japan. RevPAR across all major markets has exceeded pre-Covid levels, with the exception of Japan. Singapore continues to be the crown jewel with a 2H23 RevPAR of 305%, approximating 119% of pre-Covid levels. Although traditionally a seasonally high base in 1H23, we are pleasantly surprised and note that 2H23 performance amongst the Singapore assets has been well supported by MICE events and the F1 Grand Prix, which has resulted in a flat h-o-h performance.
Other geographical markets in the likes of Australia, UK, and Malaysia are also seeing RevPAR growth at a level that is 9%-13% higher than pre-Covid levels, supported by a return of MICE events. On a full-year basis, gross operating revenue has recovered c.100.4% to 117.7% across all markets, a c.30%-65% increase y-o-y. Gross operating profits moved in tandem in Singapore, Malaysia, and Germany to exceed pre-Covid levels, while that of Australia, UK, and Japan are still below pre-Covid levels.
Improving ICR ratio on the back of low gearing rate of 34%. Interest rates ended the financial year at 3.1% (76% hedged to fix rates), up 80bps from end-FY22, while gearing remains low at 34% in comparison to sector peers. ICR improved from 2.6x in FY22 to 3.6x in FY23 on the back of improving operational cash flow. Loans worth c.S$150m will come due in FY24, approximately 21% of FHT’s total loan book.
Full-year valuation uplift of 1.7% y-o-y in SGD denomination. FHT’s full-year valuations came in stronger than expected, with a valuation uplift seen across all portfolio assets in local currency terms, except for Maritim Dresden, which declined 5.3% y-o-y. Portfolio valuation rose 1.7% y-o-y in SGD terms, despite a strong SGD. We observe that cap rates have expanded by 50-150bps in overseas markets (across selected Australia and Europe assets), which has been more than compensated by strong cash flow growth to reflect an increase in valuation in local currency terms.
Cap rate expansions in FHT’s Asia markets (Singapore, Japan, Malaysia) have generally remained within the tighter range of >c.25bps. FHT’s year-end revaluation was generally within our expectations that an upward trajectory in cash flow recovery will help support valuations, despite an expansion in cap rates, which we have seen in other asset classes for the corresponding geographies.
Maintain BUY with higher TP of S$0.62 (previously: S$0.58). We roll forward valuations into FY24F, while adjusting our estimates to account for changes in forex translation and higher portfolio RevPAR. We maintain our interest rate assumptions at 3.75% for FY24F, a sufficient buffer from the existing 3.10% (as at 30 Sep 2023). DPU for FY24F/FY25F of 2.72/2.83Scts represents an 8% CAGR for the coming years.