The Australian dollar is the fifth most traded currency in the world. It can also be quite volatile.
Factors such as interest rate, commodity prices and the health of the Australian economy can have an impact on the value of the currency. Recently, the Australian dollar weakened compared to the Singapore dollar, where one Australian dollar now is worth less than a Singapore dollar. As the latter declines, companies that do business in Australia will likely be affected.
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With that said, I have identified three companies that might be affected by the weakened Australian dollar.
1. Ascendas Hospitality Trust (SGX: Q1P) owns a portfolio of 10 hotels located in Singapore, Australia, Japan and Korea. However, around 64% of its total revenue comes from its Australian properties. In its recent quarter, the trust delivered weaker results compared to a year ago, in part due to the poor performance of its Australian portfolio. Gross revenue and net property income decline 6.1% and 15.5%, respectively. On a constant currency basis, net property income would have declined 12.6% instead. With such a big exposure to Australian markets, the weaker Australian dollar could affect the trust’s earnings and distributions going forward.
At the time of writing, units of Ascendas Hospitality Trust traded at S$0.80 per piece, which translates to a price-to-book ratio of 0.8 and a distribution yield of 7.3%.
2. Frasers Logistics and Industrial Trust’s (SGX: BUOU) portfolio consists of 61 properties in Australia and 21 properties in Europe which it acquired earlier this year. The trust’s Australian portfolio makes up more than 60% of its total portfolio value. In the second quarter of 2018, the trust delivered a good set of results with distribution per unit increasing 2.9% year-on-year. This increase was largely due to the contribution of its newly acquired European portfolio of properties. As with Ascendas Hospitality Trust, it will be interesting to see how the weakened Australian dollar will affect its distributions which are paid out in Singapore dollars.
At the time of writing, units of Frasers Logistics and Industrial Trust traded at S$1.08 per piece, giving it a price-to-book ratio of 1.17 and a annualised distribution yield of 6.6%.
3. Singapore Telecommunications Limited (SGX: Z74) derives a large proportion of its revenue from Australia through its subsidiary, Optus. In its latest quarter ended 30 June 2018, Optus contributed S$2.2 billion or 53% of its total revenue. During that quarter, operating revenue declined 3% year-on-year, in part, due to the weakened Australian dollar. It also worth noting that Singtel’s revenue guidance for the next fiscal year is based on an exchange rate of one Australian Dollar to 1.04 Singapore dollar. As the Australian currency has declined since then, its operating performance might fall short of its expectations.
Singtel shares currently trade at S$3.16 per share, which translates to a price-to-earnings ratio of 9.5 and dividend yield of 5.5%.
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