YTLREIT’s 6MFY18 realized net profit grew by 36% yoy on higher earnings from both Australian and Malaysia assets. Results were above expectations. Australian hotels portfolio delivered stellar 6M17 NPI growth of 20% on higher occupancy, higher average room rates and stronger AUD (vs RM). We raised our FY18-20E EPU by 9-12%. At 7.8% FY18E yield, valuations looks attractive. Maintain BUY.

6MFY18 Realized EPU Grew by 9% Yoy, Above Expectations

YTLREIT’s 6M18 realized net profit grew by 36% yoy to RM77.4m on higher contributions from both Australian and Malaysia assets. Its Australian hotel portfolio delivered stellar NPI (+20% yoy) growth, driven by stronger AUD (vs RM), higher occupancy rate (+2 ppt to 88%) and 7% growth in average room rates, following the completion of the Sydney Harbour Marriott refurbishment. Elsewhere, its Malaysia operations reported higher NPI attributable to step-up cycle of +5% in the Master Lease portfolio and maiden contribution from the Majestic Hotel. However, its 6M18 DPU fell by 8% to 3.97 sen due to dilution from new shares issued in Dec16 (+29% to share base) and timing differences for cashflow realisation from its foreign operations (0.58 sen per share), which we expect to reverse in coming months. Overall, the results beat market and our expectations: 6M18 realised net profit accounts for 58% of consensus and 55% of our full year forecasts. The variance against our forecast was due to higher than expected earnings from its Australian assets.

Sequentially, 2Q18 Realised Net Profit Grew by 33%

YTLREIT’s 2Q18 realised net profit grew by 33% qoq to RM44.2m driven by maiden contribution from the Majestic Hotel (acquired in Nov17, rental RM2.2m/month) and higher NPI from Australia hotels, fuelled by higher occupancy (+1 ppt to 88.7%) and 16% qoq growth in average room rates.

Raising FY18-20E EPU by 9-12%%, Maintain BUY on Attractive Yield

We raised our FY18-20E EPU forecasts by 9-12%, imputing higher occupancy rate of 88% (from 86%) and average room rate of AUD266 (+6% yoy) for its Australian hotel operations. We reiterate our BUY rating with a higher DDM-derived target price of RM1.61. We continue to like YTLREIT for its steady Master Leases (properties in Malaysia and Japan) and rising earnings from its Australian hospitality portfolio. At 7.8% FY18E yield, valuation looks attractive. Key risks to our call are a sharp slowdown in Australia’s hospitality market and non-renewal of lease agreements. This note marks a transfer of coverage.

Source: Affin Hwang Research - 26 Feb 2018