A champagne year
- 3Q15 DPU up 7% to 2.35Scts; results in line.
- Alexandra Technopark continues to outperform.
- Deteriorating AUD/SGD a key risk to earnings.
- Maintain BUY, TP S$1.76.
Highlights:
Another strong quarter.
- Frasers Commercial Trust (FCOT) delivered 7% rise in 3Q15 DPU to 2.35 Scts.
- This was on the back of a 17% rise in top-line and a 6% rise net property income to S$34.7m and S$24.3m respectively.
- Performance was largely supported by Alexandra Technopark, which continues to roar ahead after the expiry of the master lease in Aug-14.
- However, this was offset by the weak AUD-SGD exchange rate and lower occupancy at Central Park in Perth.
Robust reversions.
- Portfolio occupancy was stable at 95.1% (Singapore properties : 95.3%; Australia : 94.9%).
- Rental reversions for Singapore properties, namely China Square Central and Alexandra Technopark were up by between 14.3% and 20.0%.
- Rents for Central Park declined by 25%; but we note that this is from only c.1% of its NLA ( ancillary retail space) and is likely to be manageable.
Outlook:
- Weak AUD a drag on earnings growth.
- While the Manager employs 6-9 month rolling currency hedges to smooth out fluctuations in the AUD/SGD rate, we are more concerned about the long term movement of the AUD, particularly given that c.40% of NPI is derived in AUD.
- As the AUD nears parity with SGD, we have revised our exchange rate assumptions slightly down.
Valuation:
- Based on our lower AUD/SGD rate assumptions, we have trimmed our DPU estimates for FY15-16 down by 1-2%.
- As we roll forward our valuations, we derive a slightly lower DCF-backed TP of S$1.76 to factor in further currency weakness.
- At its current price, FCOT offers investors a dividend yield of c.6.2-6.4% over FY15-16F, and total return of 20%.
- Maintain BUY.
(Rachael TAN, Derek TAN)
Source: http://www.dbsvickers.com/
