9M18: Higher NPI Across All Segments

YTLREIT reported a decent set of results – 9MFY18 realised EPU grew by 11% yoy on contribution from the newly acquired Majestic Hotel and higher earnings from both Malaysian and Australian hotels. The results were within our expectations but ahead of consensus estimates. Maintain BUY. We continue to like YTLREIT for its solid earnings outlook – c.49% of YTLREIT’s NPI is contributed by its hotels under long-term leases with high earnings visibility while the other 51% is derived from Australian hotels with a positive outlook. With 7.2% FY17A / 7.7% FY18E yields, YTLREIT offers one of the highest yields among its regional peers, and looks attractive.

9MFY18 realised EPU grew by 11% on higher rental, improved occupancy and contribution from new asset

YTLREIT’s 9M18 realised net profit grew by 28% yoy to RM119.7m on higher contribution from its Australian hotels (+16% yoy driven by 8% growth in revenue per available room), maiden contribution from the Majestic Hotel and higher profit from its Malaysian hotels attributable to a step-up cycle of +5%. However, its 9M18 DPU fell by 4% to 5.90 sen due to a higher share base and timing differences for cashflow realisation from its foreign operations, which we expect to reverse in coming months.

Sequentially, Core Net Profit Were 4% Weaker Due to RM Strength

Sequentially, YTLREIT’s 3QFY18 realised net profit fell by 4% to RM42.3m due to lower NPI from its Australian hotels (-8% qoq) as a result of the stronger RM vis-à-vis the Australian Dollar (+3.7% qoq).

Earnings Were Broadly Within Our Expectations

Overall, the earnings were within our expectations, but ahead of the street’s forecast. YTLREIT’s 9M18 realised net profit accounts for 85% of the consensus and 80% of our full-year forecasts. We expect a weaker 4Q18 performance due to the renovation at its Brisbane hotel and a stronger RM (to AUD).

Maintain BUY With Unchanged DDM-derived Target Price of RM1.35

We continue to like YTLREIT, an underappreciated owner of luxurious hotels, for its solid earnings outlook. With 7.2% FY17A / 7.7% FY18E yields, YTLREIT offers one of the highest yields among its regional peers, and looks attractive. Key risks are a deterioration in the Australian hotel market, interest rate hike(s), and strengthening of the RM against the AUD.

Source: Affin Hwang Research - 25 May 2018