CapitaLand Ascott Trust (CLAS) HMN is remaining the top pick amongst analysts after the release of the trust’s business update for the 1QFY2023 ended March 31.
On April 26, CLAS announced that its 1QFY2023 gross profit rose by 59% y-o-y although no figures were released. The higher gross profit, which was also 97% of the trust’s pre-Covid-19 levels during the 1QFY2019, was due to a stronger operating performance and contributions from CLAS’s new properties during the quarter. Excluding its new properties, CLAS’s gross profit rose by 53% y-o-y.
CLAS’s revenue per available unit (RevPAU) spiked 90% y-o-y to $127 during the 1QFY2023, which stood at 93% of the trust’s pro forma RevPAU in the 1QFY2019.
PhillipCapital analyst Darren Chan has maintained his “buy” call with an unchanged target price of $1.26, noting positives such as CLAS’s RevPAU growth and its “resilient” extended stay segment.
While he observes that the trust’s interest expense increased during the quarter, CLAS remains his top pick within the hospitality sector for its geographically diversified portfolio.
CLAS’s wide range of lodging asset classes, stable income base which has proven its resilience through Covid-19, as well as its strong sponsor, is also among the reasons behind Chan’s pick.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents.
“We also like CLAS for its balanced mix of stable and growth income sources, which is at 59% and 41% of gross profit in 1QFY2023 respectively. (Higher proportion of stable income in 1QFY2023 compared to 4QFY2022 mainly due to 1Q being a seasonally softer quarter for transient travel.),” he writes.
“The current share price implies a FY2023 dividend yield of 6%,” he adds.
In his outlook statement, Chan believes that CLAS’s forward bookings will remain healthy supported by the strong demand from both international and domestic travel, as well as robust activity from corporate travel and business activities.
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
“As of January 2023, global airlines are operating at only 11% of their 2019 capacity levels to and from China. This is expected to increase to 25% by April 2023. China is a key source market for travellers to many countries, and the return of flight capacity is expected to drive outbound travel. In 2019, Chinese travellers accounted for approximately 9% of CLAS's guest count (about 4% in 1QFY2023) and we think this percentage will increase in the second half of 2023,” he notes.
That said, the analyst is expecting CLAS’s growth in its average daily rates (ADRs) to moderate as it has already surpassed its pre-pandemic levels in some markets. He adds that the driver for its RevPAU growth going forward will come from high occupancy rates.
“CLAS’s revenue growth has outpaced the increase in operating costs - electricity costs have increased, but it remains less than 10% of [its] operating expenses (opex),” he says.
CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee have also kept their “add” call with an unchanged target price of $1.27.
Like PhillipCapital’s Chan, Ong and Lock like CLAS, putting it as their “top pick” within the hospitality sector.
“[CLAS’s] balanced portfolio provides stability and upside exposure to the hospitality market,” they explain.
They also remain optimistic in their outlook for the hospitality sector on the whole with international flights out of China remaining below 20% of their pre-Covid-19 levels in 1QFY2023. China is one of the trust’s largest source markets, the analysts note.
For more stories about where money flows, click here for Capital Section
“As airline volumes recover, we expect future RevPAU growth to be driven by recovery in portfolio occupancy. While corporates may be tightening corporate budgets, given that CLAS’s serviced residences and (business) hotels are in the mid -tier segment, the management thinks their assets may see more demand as corporates select mass market over upscale and luxury tiered accommodation,” the analysts write.
To them, accretive acquisitions and divestments as well as a faster recovery from the impact of the pandemic are re-rating catalysts while lower-than-expected demand in leisure and corporate travel as well as a reimposition of lockdowns are downside risks.
Units in CLAS closed flat at $1.08 on April 28.
