YTL Hospitality REIT sees start of Australia hospitality recovery: Affin Hwang

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Affin Hwang Investment Bank said YTL Hospitality REIT’s fiscal first quarter results are showing a positive start to an Australian hospitality recovery.

“We remain cautiously optimistic on the Australian hotel segment’s earnings-recovery moving forward given the positive progress in its nation’s inoculation programme which has led to progressive loosening of travel restrictions,” the bank said in a report published last week.

“However, we note that the Australian government tends to be very reactive in implementing lockdowns should there be an increase in the number of Covid-19 cases within the community as well as conservative in interstate and international border reopening,” the note added.

Indeed, on Monday, Reuters reported Australia would delay its international border reopening by two weeks after it detected its first cases of the new Omicron variant. The variant may be more contagious than variants currently circulating, but the severity of illness it causes is so far not well known.

The REIT’s distributable income for the quarter increased 6.4 percent on-year, as the Australian hotels’ segment saw revenue and net property income rise 31.9 percent and 42.4 percent on-year, even as hotel earnings in Malaysia and Japan remained flat, the investment bank noted.

“The better performance was, however, mitigated by higher forex translation losses, higher REIT expenses, higher administration and higher depreciation costs. Overall, the results were within our expectation but below the street’s estimates,” the bank said, adding the results made up 24.8 percent of its full-year forecast and just 12.9 percent of the street’s estimates.

Last week, for its fiscal first quarter, YTL Hospitality REIT reported net property income of 58.16 million ringgit, up 9.73 percent from 53.0 million ringgit in the year-ago period.

Revenue for the three months ended 30 September, the REIT posted revenue of 90.17 million ringgit, up 14.09 percent from 79.04 million ringgit in the year-ago period.

The distribution per unit (DPU) for the period was 1.0512 sen, compared with 0.9882 sen in the year-earlier period.

“The Australian portfolio improved in performance from its participation in government isolation group business programme and reduction in costs from its internal cost saving efforts,” the REIT said in its filing to Bursa Malaysia.

Affin Hwang said it was keeping its Hold call and 90 sen target price unchanged, noting the current yield of 4.1 percent was below its five-year average.

The REIT “looks fully valued considering the still challenging hospitality market outlook,” the note said.