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Morning Call 19 Feb 2018

Key Idea Far East Hospitality Trust: Bow Wow Wow Far East Hospitality Trust's (FEHT) results were within expectations. Altogether, FY17 revenue was down 4.8% YoY to S$103.8m while DPU ended 9.9% down YoY at 3.90 S cents or 98% of our full-year forecast. Management indicated that its Orchard assets and Oasia Hotel Novena found the entry of the nearby hotels in 4Q17 challenging. We believe poorer operating performance from these assets pulled down the positive RevPAR trend for the rest of the hotel portfolio. We continue to see 2018 as a period of recovery from this low base, though we tweak our RevPAR growth rates for FY18 downward. For the serviced residences, we believe 1Q18 should see a marked improvement YoY – recall that FEHT’s SR suffered a 13.1 ppt drop in occupancy to 71.2% in 1Q17. After adjustments, our fair value decreases from S$0.77 to S$0.75. As at 15 Feb’s close, FEHT is trading at a FY17 yield of 5.5% (actual) and a FY18F yield of 6.2% (our forecasts). Maintain BUY. News Headlines  MindChamps PreSchool Limited has inked a JV agreement with China First Capital Group Limited that will see the establishment of a fund that will target to raise an initial tranche of US$200m to set up and acquire preschool centres in China.  Design Studio Group Ltd. has announced that the group is expected to report a significant loss for 4QFY17 which will adversely impact the FY17 performance.  Indofood Agri Resources Ltd.’s subsidiary and its JV partner have agreed to jointly invest in a new JV, with each partner contributing an initial capital of BRL 23.6m.  Sakae Holdings Ltd.’s 4Q17 revenue dropped 18.0% YoY to S$18.6m while PATMI reversed from a loss of S$5.3m in 4Q16 to a gain of S$99k in 4Q17.

Research Team (65) 6818 4815 e-mail: [email protected]

Sources: MasNet, Bloomberg, Business Times, Straits Times and other media

Please refer to important disclosures at the back of this document.

MCI (P) 005/06/2017

OCBC Investment Research Market Pulse 19 Feb 2018

Far East Hospitality Trust: Bow Wow Wow  Lucky Year of the Dog!  6.2% FY18F yield as at 15 Feb close  Maintain BUY 4Q17 results within expectation Far East Hospitality Trust's (FEHT) results were within expectations. 4Q17 gross revenue dropped 6.6% YoY to S$25.7m. Hotel RevPAR and Serviced Residences (SR) RevPAU dropped 2.4% YoY and 5.5% YoY respectively in 4Q17, which contributed to the master lease rental dropping 7.8% YoY. 4Q17 DPU dropped 13.4% YoY to 0.97 S cents. Altogether, FY17 revenue was down 4.8% YoY to S$103.8m while DPU ended 9.9% down YoY at 3.90 S cents or 98% of our full-year forecast. Orchard and Novena assets affected in 4Q17 We were slightly surprised by the weakness in 4Q17 RevPAR/RevPAU relative to the figures released by other REITs as well as Singapore Tourism Board (STB) since our last report. Recall that CDL Hospitality Trusts reported a 1.1% growth for its local hotels, while OUE Hospitality Trust posted a 2% RevPAR gain for Mandarin Orchard Singapore. For SRs, Ascott Residence Trust reported a 6% growth for its Singapore assets under management contract. FEHT’s management indicated that its Orchard assets and Oasia Hotel Novena found the entry of the nearby hotels in 4Q17 challenging. We believe poorer operating performance from these assets pulled down the positive RevPAR trend for the rest of the hotel portfolio. OHD has clear potential for RevPAR improvement We continue to see 2018 as a period of recovery from this low base, though we tweak our RevPAR growth rates for FY18 downward. For the serviced residences, we believe 1Q18 should see a marked improvement YoY – recall that FEHT’s SR suffered a 13.1 ppt drop in occupancy to 71.2% in 1Q17. The SR occupancy has since recovered to 78.2% as at 4Q17. We remain positive on the acquisition of Oasia Hotel Downtown (OHD), which is expected to complete in April. We had a tour of asset after last Thursday’s briefing and were impressed with the facilities. We expect that OHD will be able to achieve higher NPI in time, relative to the ~S$170 figure clocked for 9M17. After adjustments, our fair value decreases from S$0.77 to S$0.75. As at 15 Feb’s close, FEHT is trading at a FY17 yield of 5.5% (actual) and a FY18F yield of 6.2% (our forecasts). Maintain BUY. (Deborah Ong)

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OCBC Investment Research Market Pulse 19 Feb 2018

Calendar of key events 19-Feb-18

20-Feb-18

21-Feb-18

22-Feb-18

23-Feb-18

SMM 4Q17

SCI 4Q17

GENS 4Q17

US Feb MBA Mortgage Applications

WIL 4Q17

STE 4Q17

US Feb Manufacturing PMI

US Feb Initial Jobless Claims

SG Jan CPI

28-Feb-18

1-Mar-18

2-Mar-18

US Jan Existing Home Sales

26-Feb-18

27-Feb-18

RFMD 4Q17

GGR 4Q17

CIT 4Q17

US Feb Initial Jobless Claims

US Jan New Home Sales

UOL 4Q17

US Feb MBA Mortgage Applications

US Feb Manufacturing PMI

SG Jan Industrial Production

US Jan Wholesale Inventories

US 4Q17 GDP Annualized

US Jan Construction Spending

US Jan Durable Goods Orders

SG Jan Money Supply

US Feb ISM Manufacturing

US Feb Consumer Confidence

CN Feb Manufacturing PMI

CN Feb Manufacturing PMI

5-Mar-18

6-Mar-18

7-Mar-18

8-Mar-18

9-Mar-18

US Jan Factory Orders

US Mar Mortgage Applications

US Mar Initial Jobless Claims

US Feb Change in Nonfarm Payrolls

US Jan Durable Goods Orders

US Jan Trade Balance

CN Feb Trade Balance

US Feb Unemployment Rate US Jan Wholesale Inventories CN Feb PPI CN Feb CPI

12-Mar-18

13-Mar-18

14-Mar-18

15-Mar-18

16-Mar-18

SG Jan Retail Sales

US Feb CPI

US Feb PPI Final Demand

US Mar Initial Jobless Claims

3311 HK 4Q17

US Mar Mortgage Applications

US Feb Retail Sales Advance

CN Feb Money Supply (10 Mar - 15 Mar)

US Feb Housing Starts US Feb Industrial Production SG Feb Non-oil Domestic Exports

19-Mar-18

20-Mar-18

21-Mar-18

22-Mar-18

23-Mar-18

US Mar Mortgage Applications

US Mar Initial Jobless Claims

US Feb Durable Good Orders

US Feb Existing Home Sales

US Mar Manufacturing PMI

US Feb New Home Sales SG Feb CPI

Notes:

Sourced from Bloomberg All US Tech results dates have been adjusted to Singapore dates. US Initial jobless claims are released every Friday. MBA mortgage applications are released every Wednesday.

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OCBC Investment Research Market Pulse 19 Feb 2018

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