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Far East Hospitality Trust 'not yet compelling' amid muted outlook: OCBC

Samantha Chiew
Samantha Chiew • 2 min read
Far East Hospitality Trust 'not yet compelling' amid muted outlook: OCBC
SINGAPORE (June 13): OCBC Investment Research is maintaining its “hold” rating on Far East Hospitality Trust (FEHT) with a fair value estimate of 67 cents, amid a muted outlook and ongoing macroeconomic uncertainties that are expected to weigh on the
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SINGAPORE (June 13): OCBC Investment Research is maintaining its “hold” rating on Far East Hospitality Trust (FEHT) with a fair value estimate of 67 cents, amid a muted outlook and ongoing macroeconomic uncertainties that are expected to weigh on the stock.

According to lead analyst Deborah Ong, the stock has performed negatively since the research house downgraded FEHT to “hold” from “buy” on Apr 15.

“Far East Hospitality Trust has posted total returns of -4.5% since our downgrade,” Ong says in a Wednesday report.

She notes that FEHT has also underperformed the FTSE Straits Times REITs Index by some 8.8 percentage points in the same period.

According to data from the Singapore Tourism Board (STB), April saw decent visitor growth but a generally disappointing RevPAR performance.

Visitor arrivals were 3.4% higher y-o-y, with visitor days up 4.0% y-o-y for the month.

However, RevPAR growth for mid-tier and upscale hotels shrank 1.6% and 2.1% y-o-y, respectively.

“In our last report, we did highlight that April would continue to be challenging for Singapore hotels given the absence of biennial event Food&HotelAsia. In addition, the Trump-Kim summit held in Jun last year was another boon for FEHT’s hotels that will be absent this year,” Ong says.

“We continue to see 2H19 as being more promising for RevPARs than 1H19, but continue to keep an eye on the US-China trade tensions and its implications for discretionary spending across the region,” she adds.

Based on OCBC’s forecast, the stock is trading at a FY19 yield of 6.1%, as at June 11’s close of 64.5 cents.

According to Bloomberg consensus figures, FEHT’s blended forward 12 month yield stands at 6.65% as at June 11’s close – very close to its 5-year average.

In contrast, Ascott Residence Trust (ART) and CDLHT are trading at 1.8 times and 1.1 times standard deviations below their five-year averages, respectively.

“While FEHT’s unit price has come off with the counter trading at more reasonable valuations as compared to ART and CDLHT, we believe muted outlook for 2Q18 and ongoing macroeconomic uncertainties will weigh on the stock,” says Ong.

As at 12.50pm, units in FEHT are trading at 65 cents or 19.5 times FY19 earnings with a DPU yield of 6.1%.

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