DBS downgrades Frasers Hospitality Trust on weaker Australia outlook

Australian notes and coins

DBS downgraded Frasers Hospitality Trust to Hold from Buy after lower-than-expected fiscal second-quarter results and a weaker Australia outlook.

“Given FHT’s key Australian market is facing supply pressures in the next one to two years and limited upside to our target price, we believe FHT’s share price performance may be capped for now,” DBS said in a note Friday.

Frasers Hospitality Trust reported last week its fiscal second quarter net income fell 9.1 percent on-year to S$25.2 million on weaker performances from the Australia, Malaysia and Japan portfolios.

DBS noted net property income for the Australia portfolio fell 11 percent on-year on the depreciation of the Australian dollar against the Singapore dollar and weakness in the Sydney properties, which faced more competitive market amid increased room supply.

“We understand demand from Australian domestic corporates has been weak and an expected increase in supply could potentially result in continued soft RevPAR (revenue per available room) performance for FHT’s Sydney properties,” DBS said.

After the weaker-than-expected fiscal second quarter results, DBS cut its fiscal 2019-20 distribution per unit forecasts by 11-13 percent, and lowered its target price to S$0.77 from S$0.78. But the bank noted that FHT is in a “strong position” to pursue acquisitions, which could provide earnings upside.

Frasers Hospitality Trust’s units fell 0.67 percent on Friday to close at S$0.74.

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