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Brokers' take: Maybank KE downgrades Far East H-Trust to 'hold' amid virus outbreak

MAYBANK Kim Eng has downgraded its call for Far East Hospitality Trust's (Far East H-Trust) to "hold", and reduced its dividend discount model-based (DDM) target price to S$0.70 from S$0.80.

The move came after the hospitality stapled group on Friday posted weaker than expected results, with its distribution per stapled security (DPS) falling 5 per cent to 0.95 Singapore cent for the fourth quarter ended Dec 31.

Maybank Kim Eng also foresees weaker income visibility for Far East H-Trust's Singapore-focused portfolio, despite some support from master leases, with demand likely to slow amid the Covid-19 outbreak.

"Singapore's initially busy 2020 event calendar has seen cancellations and postponements into the second half of 2020, and near-term demand visibility remains weak," wrote analyst Chua Su Tye.

Far East H-Trust's assets could trade down to their minimum rents if visitor arrivals to the Republic shrink by 25 to 30 per cent as suggested by the Singapore Tourism Board, Mr Chua added.

He said that Maybank Kim Eng prefers CDL Hospitality Trusts - with a "buy" call and target price of S$1.75 - as well as Frasers Hospitality Trust - with a "buy" call and target price of S$0.80 - due to their more diversified portfolios and less demanding valuations, compared to Far East H-Trust.

Separately, CGS-CIMB, DBS Group Research and OCBC Investment Research maintained their "hold" calls on Far East H-Trust, according to their respective reports published on Monday.

DBS Group Research also kept its target price of S$0.69 unchanged. Its research said Far East H-Trust's DPS and revenue for FY2019 were in line with DBS's estimates.

"In view of Far East H-Trust's exposure to the Singapore market and about 70 per cent exposure to hotels by gross revenue, we believe its operations would be adversely impacted (by the Covid-19 outbreak) in the near term," DBS analyst Derek Tan wrote.

"However, we expect impact to be mitigated by revenue contributions from commercial premises, which are locked in under longer lease tenures and fixed rents built within the master leases for the hotel and serviced residences segment," he added.

Meanwhile, OCBC Investment Research decreased its fair value estimate to S$0.65, from S$0.68 previously, after factoring in the potential Covid-19 impact and increasing its cost of equity assumptions. The research team added that Far East H-Trust's fourth-quarter results had come in within OCBC's expectations.

On the other hand, CGS-CIMB raised its DDM-based target price slightly to S$0.65, from S$0.64.

"Since the Covid-19 outbreak hit Singapore. Far East H-Trust's occupancy rate has declined by 20-30 percentage points but remained above the estimated industry occupancy rate of 50-60 per cent," wrote CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee.

"We maintain 'hold' on Far East H-Trust as we see limited catalysts for the stock as the Reit (real estate investment trust) braces for the impact from the virus outbreak," they added.

As at 1.12pm on Monday, Far East H-Trust stapled securities were trading at S$0.665, up S$0.005 or 0.8 per cent on a cum-dividend basis.