Frasers Centrepoint Trust - DBS Research 2017-05-30: Northpoint AEI A Turnkey

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FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Northpoint AEI A Turnkey

Northpoint AEI to elevate growth; BUY, TP S$2.20. 

• All of FCT’s properties are suburban and necessity malls which generate a resilient income stream, and face much less threat from ecommerce or tourist spending. 
• Its largest assets, Causeway Point and Northpoint, contribute c.70% of its Net Property Income (NPI) and are local monopolies as they currently do not have any comparable competitors in the north region of Singapore. 
• In addition, the completion of Northpoint’s AEI in Sep 2017 will dissipate downside risk to earnings and elevate growth to overall distributions by more than 3% from pre-Northpoint AEI levels.

Where we differ. 

Higher DPU growth post-Northpoint’s AEI. 

• Our estimate of DPU growth from FY16 to FY18F of 3.4% is slightly higher than consensus’s estimate of 2.5%. We believe Northpoint can deliver above consensus returns after the completion of its AEI in Sep 2017 and the integration with the new wing constructed by the Sponsor. 
• Given the enlarged footprint and a lack of supply in the vicinity, FCT retains bargaining power for retailers who wants a presence in the northern region.

Potential Catalyst: 

Acquisition of Waterway Point. 

• Much anticipated acquisition of the one-third stake in Waterway Point from the Sponsor, FCL will fuel further upside to earnings. FCT’s low gearing of c.30% avails the Trust with much needed financial muscle to fund the acquisition. 
• We believe that FCT could potentially raise equity to part fund the acquisition, which in our view is still accretive assuming supportive share price. 
• Improved liquidity for the stock could also make FCT more attractive to larger fund managers.

Valuation

• Our DCF-backed TP is S$2.20. 
• The stock offers a forward dividend yield of around 5.7-5.8% for FY17F and FY18F, and a total potential return of about 11.5%. 
• Maintain BUY.

Key Risks: 

• Lease renewals at Northpoint. Reversion and tenant retention at Northpoint are testimonials of tenants’ confidence in the mall after it restores full operation from October 2017 (FY18).

Singapore Research Team DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-05-30

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.200 Same 2.200