• YTLREIT reported a lower 6MFY21 distributable income of RM34.3m (-48.1% yoy) due to weaker Australian assets’ performance and a 50% rental deferment for its Malaysian hotels and Japan’s Hilton Niseko
• However, the results were above expectations due to better-than-expected earnings from the Australian operations
• Maintain HOLD with a higher target price of RM0.86. In anticipation of further improvement in the hospitality industry following distribution of the Covid-19 vaccine, we raise our FY21-23E earnings by 5-26%

6MFY21 Distributable Income Fell by 48.1%

YTLREIT’s 6MFY21 distributable income fell by 48.1% yoy to RM34.3m. The weaker performance was attributable to: (i) lower revenue from the Australian hotels due to closure of states / international borders, partly cushioned by lower opex; and (ii) 50% rental deferments of its Malaysian hotels and Japan’s Hilton Niseko Village in FY21-22, to be repaid on a staggered basis within 7 years or over the remaining tenures of the existing leases. In tandem with the weaker earnings, a lower DPU of 1.81 sen was declared for 6MFY21 (vs 6MFY20: 3.87 sen). Overall, the results were above our expectations. The earnings beat was attributable to better than expected earnings from the Australian operations arising from cost savings and capital preservation initiatives.

Sequentially, Distributable Income Grew 3.6% Qoq to RM17.4m

Sequentially, YTLREIT’s 2QFY21 distributable income grew 3.6% to RM17.4m on lower management fees and interest expense. Headline net profit fell to a loss of RM26.4m in 2QFY20 (vs 1QFY20 profit of RM16.6m) due to a higher unrealised forex loss of RM42.5m (vs loss of RM2.6m in 1QFY20). Elsewhere, its NPI fell by 7.3% qoq due to the absence of Australian government subsidies for its Brisbane Marriott hotels.

Maintain HOLD With a Higher DDM-derived TP of RM0.86

We raise our 2021-23E earnings by 5-26% as we believe we were too conservative in our previous forecast. We now expect stronger improvement in the hospitality industry following the rollout of the Covid-19 vaccines. In tandem with our earnings upgrade, we lifted our DDM-derived price target to RM0.86 (from RM0.84). Maintain HOLD. Key upside / downside risks: further deferment of the rental repayment for the Malaysian hotels, higher / lower-than expected earnings from the Australian hotels, and strengthening / weakening of the AUD against the RM.

Source: Affin Hwang Research - 26 Feb 2021