YTL Hospitality REIT 2QFY20 in-line

Maybank Research, February 21, 2020

Analyst, Kevin Wong

YTL Hospitality REIT
Target Price: RM1.50

Maintain BUY
2QFY20 results and 2nd interim gross DPU of 1.92sen (1HFY20: 3.87sen) were within our expectations where 1HFY20 core earnings came in at 52%/59% of our/consensus’ full-year estimates. Nevertheless, we reduce our FY20-21E earnings by 2-4% after factoring in some near-term occupancy impact on the Australian portfolio from the COVID-19 outbreak and realigning our FX estimates. Our DDM-TP of MYR1.50 is intact (Ke: 8.6%). YTLREIT remains as our top pick for the sector, attributed to its resilient master lease rental income and strong pipeline of assets.

Improved by Australian hotels and JW Marriott
2QFY20 core net profit was MYR42.8m (+8% YoY, +24% QoQ), bringing 1HFY20 core earnings to MYR77.3m (+10% YoY). 2QFY20’s bottomline growth (YoY) was largely driven by: (i) higher room sales at the Australian hotels post completion of refurbishment works (namely Brisbane Marriott), (ii) improved operational efficiency and cost savings at the Australian hotels, and (iii) higher rental income from JW Marriott post refurbishment completion in Jun 2019. This, however, was partly mitigated by the strengthening of MYR against AUD which has resulted in lower translated earnings.

Lowering FY20-21E estimates 
We reduce our FY20/21E by 2%/4% after adjusting for: (i) softer performance at its Australian hotels to factor in some occupancy impact from the COVID-19 outbreak, and (ii) forex (i.e. AUD/MYR to 2.75-2.77 from 2.80-2.85). Post-adjustments, the Australian portfolio contributes c.43% p.a. to YTLREIT’s FY20-22E NPI.

Remains positive beyond near-term challenges 
In spite of some near-term challenges from its Australian market due to the COVID-19 outbreak, we remain positive on YTLREIT’s Malaysian and Japanese assets’ resilient rental income which is backed by master leases. Meanwhile, YTLREIT still has a strong pipeline of hospitality assets from its parent, YTL Corp (YTL MK; Not Rated) – supported by a manageable gross gearing of 0.41x (end-2QFY20).

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