Maybank IB Research maintains YTL Hospitality REIT as Top BUY
With 16% total return

Maybank IB Research, November 27, 2019

YTL Hospitality REIT
BUY
Target Price: RM1.50

Maintain as top BUY with 16% total return
1QFY20 core net profit was in-line. Though at 22%/23% of our/consensus' full-year estimates, we expect seasonally stronger 2Q and 3Q from its Australian hotels. Our earnings estimates and DDM-TP of MYR1.50 are intact (Ke: 8.6%). YTLREIT remains our top BUY pick for the sector, based on its resilient earnings from master lease assets and strong pipeline of hospitality properties from its parent. CY20E net DPU yield is a decent 5.9%.

Lifted by Australia, JW Marriott and new asset
1QFY20 core net profit was MYR34.6m (+13% YoY, +11% QoQ). The higher YoY core bottomline was mainly attributed to: (i) its Australian hotels, namely Brisbane Marriott, which have recorded higher room sales post refurbishment; (ii) JW Marriott's higher rental income contribution post refurbishment completion in Jun 2019; and (iii) rental income contribution from its new asset, The Green Leaf Niseko Village, which was acquired in Sep 2018.

Positive on master lease assets
Apart from The Green Leaf Niseko Village, our FY20-22E earnings growth also factored in rental step-ups at selected properties and performance improvements at the Australian hotels. We continue to like YTLREIT's master lease properties (all assets in Malaysia and Japan; 54-55% of YTLREIT's NPI) which provide stable rental income and entail lower occupancy risks.

Still has room for more
We understand that YTLREIT plans to expand its portfolio further via acquisition of assets, particularly hospitality assets from its parent, YTL Corp (YTL MK; Not Rated) - potentially within the Europe and South East Asia regions. This is supported by its end-1QFY20 gross gearing of 0.41x which enables maximum debt headroom of approx. MYR836m (at 0.5x).