CapitaLand Ascott Trust: Gross Profit at 97% of Prepandemic Level; Stable Outlook

No-moat CapitaLand Ascott Trust HMN, or CLAS, had a strong first quarter, with gross profit increasing by 59% year over year, reaching 97% of the first-quarter gross profit in 2019, after stripping out foreign exchange effects (according to CLAS). The strong showing was in line with our expectations given the low base a year ago, and we expect this strong growth to decelerate in the next few quarters. Overall, we think CLAS is tracking well to reach our full-year forecast of 23% year-on-year growth in gross profit. We leave our assumptions and fair value estimate of SGD 1.24 unchanged and like the trust for its stable income base that provides downside risk protection. Based on its last closing price of SGD 1.07, we think the trust trades at an attractive dividend yield of 6.4%. However, we expect the trust to range-trade as concerns over rising inflation and high interest rates offset industry tailwinds from China’s reopening.

Strong first-quarter earnings were primarily driven by recoveries in revenue per available unit, especially in Japan, Singapore, and Australia. The pro forma revPAU increased 90% year over year, reaching 93% of the revPAU of prepandemic first-quarter 2019. Notably, Japan revPAU jumped to 105% of the prepandemic level, with a 351% increase year over year due to inbound international travelers following its border reopening last year. Looking ahead, we believe Japan will continue to take the lead in growth based on near-term bookings disclosed by management during the earnings call. In addition, we think inbound and outbound China international travel will support revenue growth across the group’s properties globally in the second half of 2023 and the first half of 2024, as more international routes to and from China resume.