Compiled by Navin Sregantan
FU YU CORP| BUY (MAINTAINED)
APRIL 15 CLOSE: $0.21
TARGET PRICE: $0.285
UOB Kay Hian, April 15
Fu Yu's conservative accounting policy in recognising its properties at book value has undervalued the assets by $50 million, or 33 per cent of its market cap, based on its 2018 annual report.
We believe any potential disposal of properties to further streamline its operations could unlock hidden value and reduce operational costs.
The hidden value of these properties, its cheap valuation, diversified operations and low utilisation rate make Fu Yu an attractive takeover target.
Fu Yu offers dividend yield of 8.5 per cent for the year, and net cash forms 53 per cent of its market cap.
Last year, Fu Yu raised its interim dividend for the first time in three years, and we expect further increases.
Share price catalysts include a higher-than-expected net profit and dividend, a potential takeover offer and potential corporate actions to unlock values such as disposal of properties.
SINGAPORE HOSPITALITY | NEUTRAL (DOWNGRADED)
OCBC Investment Research, April 15
Despite a strong rally for hospitality real estate investment trusts (Reits) in the year-to-date period, we are likely looking at a soft Q1 2019 in terms of operations.
Recent Singapore Tourism Board data reflected poor revenue per available room (RevPar) performance from upscale and mid-tier hotels for the first two months of the year.
Meanwhile, our channel checks have revealed that March was also a subdued month for the industry.
Given that the supply situation remains favourable, we believe the softness in RevPar has more to do with the absence of events that were held last year.
Post the year-to-date rally, we downgrade top pick Ascott Residence Trust (ART) as well as Far East Hospitality Trust (FEHT) each from "buy" to "hold", while we maintain "hold" on CDL Hospitality Trusts (CDLHT).
Based on our forecasts, as at the April 12 close, ART, CDLHT, and FEHT are trading at estimated FY2019 yields of 5.9 per cent, 5.7 per cent and 5.9 per cent respectively.
While we continue to see a two-year runway for RevPars to improve given the benign supply outlook, we downgrade Singapore Hospitality from "overweight" to "neutral" given the relatively tight dividend yields.
Out of all the hospitality Reits under our coverage, we see the most upside for ART.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.
The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.