Lim & Tan Securities | 21 March 2025
Unlocking the Potential of Hospitality and Edible Oil: A Comprehensive Analysis
Far East Hospitality Trust Delivers Stable Performance, Positions for Continued Growth
Far East Hospitality Trust’s Resilient Performance Amidst Challenging Conditions
1 For the year, Far East H-Trust delivered a stable financial performance, with gross revenue increasing 1.8% year-on-year to S$108.7 million. The Commercial Premises segment showed a marked improvement while the master lease rentals from the Hotels and Serviced Residences portfolio recorded a modest increase. Despite higher property tax expenses, net property income grew 0.6% year-on-year to S$99.3 million. However, income available for distribution declined to S$66.6 million due to higher net finance costs and a strategic reduction in the proportion of the REIT Manager’s fee paid in Stapled Securities from 90% to 60%, aimed at mitigating longer-term dilution effects.
1 Excluding this adjustment, income available for distribution would have been 4.8% higher at S$69.8 million. In anticipation of these impacts, the REIT Manager had announced various pro-active initiatives earlier.
1 For FY 2024, the REIT Manager further made an additional distribution of S$8.0 million to share the gains arising from the divestment of Central Square plus another S$8.1 million to buffer the higher interest cost as well as to support the change in the REIT Manager’s fee structure. As a result, distribution to Stapled Securityholders amounted to S$81.4 million, a slight decline of 0.6%. Distribution per Stapled Security stood at 4.04 cents, representing a yield of 7.2%.
Strengthening the Hotel Portfolio and Balance Sheet
1 Segment-wise, the hotel portfolio benefited from higher visitor arrivals, with leisure travellers leading a 1.4-fold increase in revenue contribution from the year before. Average occupancy improved by 0.9 percentage points to 81.0%, while the Average Daily Rate (“ADR”) rose by 4.5% to S$178. These improvements led to a 5.7% increase in Revenue per Available Room (“RevPAR”) to S$144.
1 As at 31 December 2024, the Trust maintained a strong balance sheet with total borrowings of S$718.1 million and an aggregate leverage at 30.8%, reflecting an improvement from 31.3% a year ago. This places Far East H-Trust among the lowest-geared S-REITs, underscoring its financial resilience. During the year, term loans of S$157.2 million due in April and November 2025 were successfully refinanced into sustainability-linked loans ahead of their maturity dates.
Positive Outlook Driven by Tourism Recovery and Economic Growth
1 Looking ahead, global economic growth is expected to continue supporting hospitality sector recovery in 2025. The International Monetary Fund forecasts global GDP growth at 3.3%, with China and the ASEAN-56 economies projected to expand at 4.6% and 4.5%, respectively. On the tourism front, the Singapore Tourism Board has forecasted higher international visitor arrivals of between 17.0 and 18.5 million travellers in 2025, representing a 3.0% to 12.1% year-on-year increase.
1 Singapore’s strong reputation for safety, accessibility, and reliability continues to make it an attractive destination for both business and leisure travellers. The city’s emergence as a key entertainment hub, alongside an increasing number of large-scale performances and experiential tourism offerings, is expected to further elevate its global appeal.
Oiltek International: Riding the Biodiesel Megatrend
Oiltek International: Tapping into the Growing Demand for Sustainable Energy Solutions
2 Catalist-quoted Oiltek International ($1.16, up 2 cts) has been making waves in the industry, announcing a two-for-one bonus issue, proposing a move to the mainboard of the Singapore Exchange (SGX), and finding a business partner that can help it generate a stream of recurring income for the long haul.
A Journey of Resilience and Innovation
2 Oiltek, which made its trading debut in March 2022 with an IPO price of 23 cents, builds plants that refine vegetable oils and produce biodiesel, a renewable fuel made from animal fats, vegetable oils or used cooking oils. The company’s plants are found in some 35 countries across five continents, serving customers that include palm oil mills, biodiesel producers, food and agribusiness companies, and industrial energy users looking to optimize efficiency and environmental compliance.
2 Oiltek’s CEO, Henry Yong, the company’s second-largest shareholder, initially planned to list the company in Malaysia, given its home base in the world’s second-largest producer of palm oil. However, Singapore’s status as an international business hub ultimately became Oiltek’s listing destination, as it resonated with the company’s global reach.
Securing a Recurring Income Stream
2 Last month, Oiltek entered into a heads of agreement with a subsidiary of Indonesian oil and gas company Pertamina. The goal is to form a joint venture in Indonesia for the building of a so-called pre-treatment unit and for Oiltek to supply feedstock to this facility for Kilang Pertamina Internasional to produce sustainable aviation fuel and hydrotreated vegetable oils. This will enable Oiltek to generate recurring income from supplying the feedstock once the facility is up and running, as most of its income is currently project-based and non-recurring.
Driving Demand for Renewable Energy Solutions
2 Efforts by countries to promote renewable energy are also driving demand for Oiltek’s services. Notably, mandatory biodiesel blending policies in countries like Indonesia and Malaysia are keeping Oiltek fully engaged with the industry. Biodiesel blending combines biodiesel with petroleum diesel in precise ratios, creating a fuel that works in diesel engines with little to no modification, effectively reducing carbon emissions and consumption of fossil fuels.
Resilient Performance and Strong Financials
2 Against this backdrop, Oiltek has been able to increase its annual revenue year after year, even during the Covid pandemic. Last year, revenue and earnings reached all-time highs of RM230 million ($69.1 million) and nearly RM30 million, respectively. Notably, the company has no bank borrowings and had over RM106 million in cash as at end-2024, having not even utilized any of the $3.6 million net proceeds raised from its IPO in 2022.
2 Oiltek International’s market cap stands at S$166mln and trades at FY24 PE of 18.7x and 6.5x PB, with a dividend yield of 2.3%. We continue to like Oiltek as a tech-driven edible oil processing company that continues to benefit from rising palm oil production and the biodiesel megatrend, with a consensus target price of S$1.43, representing a 23.3% potential upside.
