Investment Highlights

• We maintain our FY21F–FY23F distributable income forecasts and fair value of RM1.26 for YTL Hospitality REIT (YTL REIT), based on an unchanged target yield of 7% over its FY23F distributable income. Reiterate BUY recommendation.

• YTL REIT reported its 1HFY21 distributable income of RM34.3mil (-48.1% YoY), which came in within our full-year forecasts but below consensus, at 55% and 42% of our fullyear forecasts and consensus full-year estimates respectively.

• 1HFY21 revenue and net profit income (NPI) fell by 37.3% and 23.5% YoY to RM157.8mil and RM102.3mil respectively (from RM251.8mil and RM133.8mil a year ago). This is mainly due to a 58.2% YoY contraction in revenues coming from the Australia’s portfolio (which has been impacted by the Covid-19 pandemic, as the Australian government implemented stricter social distancing measures to contain the spread of Covid 19. The lower revenue is partly offset by the 4.1% and 3.9% YoY increase in revenues from Malaysia and Japan’s portfolio (as the lease income is recognized on a straightline basis over the tenure of the lease notwithstanding the rental variations, as per MFRS16).

• YTL REIT’s 1HFY21distributable income dived by 48.1% to RM34.3mil (from RM66mil in 1HFY20), dragged by the lower performances from Australia’s portfolio and rental variations for Malaysia and Japan’s portfolio as mentioned above, coupled with unrealized loss on foreign exchange. YTL REIT has declared an income distribution of 1.8105 sen/unit for 1HFY21.

• YTL REIT’s debt-to-total assets ratio has increased slightly to 42% from 39% in 1HFY20, still below the regulatory threshold of 60% (temporary increased limit from 50% up to 31 December 2022 as part of the relief measures implemented by the Security Commission in light of Covid- 19). As such, YTL REIT does have some headroom to gear up for new acquisition.

• We reckon the situation is temporary for YTL REIT as the rental variations/deferment will be paid back on a staggered basis commencing 30 June 2023 (or earlier). This is opposed to rental waivers, where the rental discount given is non-reversible. We like YTL REIT as a recovery play as well as yield play, with attractive dividend yields of more than 4% for FY21F and beyond amidst a low interest rate environment that is likely to be prolonged.

Source: AmInvest Research - 26 Feb 2021