Monday, 31 August 2015

Stock Review – YTLREIT (5109) -2 (YTL HOSPITALITY REIT)

Bursa Malaysia - 5109
Bloomberg - YTLREIT:MK
Yahoo - 5109. kl
Webpage - http://www.ytlhospitalityreit.com/


Income Statement

The hotel revenue had drop compared to previous year despite there is a slight increase in the hotel occupancy for the hotel in Autralia. There are two factors that might face by the YTLREIT’s hotel in Autralia which cause the revenue to drop despite the increase of occupancy rate which are:
  1. Stronger  Malaysia Ringgit for the period 1 July 2014 – 30 June 2015 compared to 1 July 2013 – 20 June 2014
  2. Strong competitive on the hotel price in Malaysia.

Since the hotel revenue is in Australia Dollar with the Australia government just reduce its interest rate May 2015, the Australia Dollar does not expect to appreciate too much these year so do the hotel revenue.

However in August 2015, Malaysia Ringgit had depreciated and become the worst performing Asia currency for year 2015. If these continue YTLREIT might had foreign transaction gain. Malaysia government had set up a team to investigate the Malaysia Ringgit depreciated issue. If success the Malaysia Ringgit might be stable.

The profit before tax and EPS for year 2015 had drop almost 50% compared to year 2014 these is because gain on fair value of investment had decrease from RM 179,440,000.00 to 44,3061,000. These will not affect the income distribution of YTLREIT because gain on fair value is just a paper gain.

PROS
  • The drop of profit before tax to almost 50% for the year 2015 will not affect the income distribution of YTLREIT because it is just lesser gain on investment property. The actual cash flow of YTLREIT does not drop 50%.

CONS
  • Australia had reduces their interest rate in May 2015 which might causes the Australia Dollar not appreciate too much.
  • Malaysia government had set up a panel to look into depreciating Malaysia Ringgit which might bring the Malaysia Ringgit stronger compared to Australia Dollar.


Financial Statement

The deposits in the bank for YTLREIT had reduced roughly RM 20,000,000 compared to last year. From the balance sheet for year ending 30 June 2015, the deposits in the bank is transfer to other receivable & prepayment which RM 15,553,545 is recoverable from Australia tax authorities in the future.

Partial of the loan which supposed to be pay by 23 November 2017 is converted to Australia Dollar loan of a lower interest rate and the due date of the Australia Dollar loan is 29 June 2020.

The remaining term loan of RM821,800,000 which supposed to be paid by 23 November 2017 support my earlier opinion that YTLREIT might use the RM 800,000,000 placement to repay the loan. If my guess is right YTLREIT is going to do the placement before 23 November 2017 which will dilute the shares after that. Besides that, the management might also consider to do the placement before the shares price drop below RM 1.00.

PROS:
  • YTLREIT manage to move partial of their loan which is supposed to be paid by 23 November 2017 to a lower interest rate Australia Dollar loan.
  •  YTLREIT also manage to extend partial of the loan term to June 2020.
  • YTLREIT had revenue from hotel operating in Australia, the loan in Australia Dollar while not affect much by the foreign currency risk because it will cancel each other.

CONS:
  • RM 15,553,545 is removed from deposit account which able to earn interest to Australia tax authorities. Although the money is recoverable, but the money is unable to earn interest rate from bank deposit. Consider 2.4 % per annual which is RM 31,107 per month.
  • RM 800,000,000.00 placement might be make soon for the loan which deadline is 23 November 2017.
  • Shares placement might reduce the share price.

Summary of Stock Reviews