Maybank Securities maintains 'buy' call on FEHT on distribution stability and robust outlook

'FEHT offers a stable distribution profile and a lowly geared balance sheet'

Krishna Guha of Maybank Securities has maintained his 'buy' call on Far East Hospitality Trust Q5t, given its "robust" 3QFY2023 performance where distributable income was up 51% y-o-y to $22.9 milllion and up 36.7% y-o-y for 9MFY2023.

In his Oct 26 report, Guha flags FEHT's distribution stability and the sector’s growth outlook.

For its 3QFY2023, FEHT was able to book better numbers from continued recovery of its hotels and service residences.

Revenue from hotels grew 15.9% q-o-q and up 56.3% y-o-y. Revenue from service residences, meanwhile, was up 9.6% q-o-q and up 14.5% y-o-y.

Guha points out that FEHT has held its cost of debt steady, helped by a lower hedge ratio. He has raised his FY2023 DPU forecast by 6% by factoring in better performance.

While Guha has kept his "buy" call, he has trimmed his target price to 75 cents from 80 cents, to take into account a higher discount rate.

"The sector continues to recover, albeit at a slower pace, and FEHT offers a stable distribution profile and a lowly geared balance sheet," he says.

On the other hand, UOB Kay Hian's Jonathan Koh has kept his "buy" call but has also increased his target price to 76 cents from 71 cents.

In his Oct 26 note, Koh points out that FEHT is working to hold its funding costs down in this environment of much higher rates. It is in an "advanced stage" of negotiations to refinance borrowings of $125 million that mature in 2024, equivalent to 17% of total borrowings. Citing the management, Koh says FEHT's average cost of debt to hit 3.5% by end of this year, up from 3.2x now.

Koh is raising his distribution per unit forecast by 9% for FY2023 and by 8% for the following year after factoring in the strong 3QFY2023 results and additional capital distribution.

The way Koh sees it, FEHT trades at a price-to-book ratio of 0.63x, which is the lowest in the universe of hospitality REITs covered by the brokerage.

"The discount is unwarranted given FEHT’s good corporate governance, a strong sponsor in Far East Organization (FEO), and low aggregate leverage of 32.2% as of Sep 2023," says Koh.

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