Maybank Research, August 1, 2018
YTL Hospitality REIT
Target Price: MYR1.50
4QFY6/18 results and final gross DPU of 1.97sen (FY18: 7.87sen) were within our estimates as bottomline growth was largely attributed to new asset contribution and better earnings at the Australian hotels. We adjust our FY19-20 earnings forecasts by +1 to +3% but maintain our MYR1.50 TP due to marginal changes in our DDM-valuation (cost of equity: 8.6%).
Lifted by new asset, rentals and Australian hotels
Excluding one-off gains of MYR32.5m (mainly from fair value gain of properties), 4QFY18 core net profit was MYR35.0m (+31% YoY, -17% QoQ), bringing FY18 core earnings to MYR154.7m (+29% YoY) which accounts for 102%/105% of our/consensusí FY18 estimates. 4QFY18ís YoY earnings were lifted by (i) contributions from The Majestic Hotel Kuala Lumpur (acquired on 3 Nov 2017), (ii) step-up of lease rentals at The Ritz Carlton Suite and Hotel Wing, and (iii) improvement at the Australian hotels - average occupancy was 85.8% (4QFY17: 85.0%) and average daily rate improved by 3% YoY. The Australian hotels also had cost saving initiatives which have lifted NPI margin. However, 4QFY18 earnings were partly mitigated by stronger MYR against AUD which has resulted in softer YoY revenue for its Australia portfolio.
We nudge up our FY19/20 net profit forecasts by 3%/1% after adjusting for FY18 full-year results. Our growth estimates are still largely driven by better performance at the Australian properties (i.e. higher room rates and occupancy rates). We also introduce our FY21 earnings forecast.
Positive on earnings outlook
We continue to like YTLREIT for its stable, recurring rental income from its assets in Malaysia and Japan, and earnings growth prospects coming from its hotels in Australia. Elsewhere, we are also positive on its strong pipeline of hospitality assets from its sponsor, YTL Corp (YTL MK; Not Rated).