Frasers Centrepoint Trust - OCBC Investment 2015-12-02: Accumulate on weakness

Frasers Centrepoint Trust - OCBC Investment 2015-12-02: Accumulate on weakness FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust: Accumulate on weakness 

 Proven defensive attributes 
 Concerns overdone for possible overseas expansion 
 Valuations attractive 

Expected to stay resilient during uncertain times 

  • We believe Frasers Centrepoint Trust’s (FCT) recent share price weakness represents a good opportunity for investors to accumulate a quality stock with solid defensive attributes. 
  • We look back into history and reaffirm our thesis that FCT’s suburban malls portfolio has indeed proven to be resilient during times of financial distress. During the Great Financial Crisis which took place from Dec 2007 (peak) to Jun 2009 (trough), FCT still managed to deliver YoY growth in its DPU every quarter ranging from 3.2% to 22.8%. During this period, occupancy suffered a blip in 4QFY08 (87.7%) and 1QFY09 (88.7%). However, this was largely due to asset enhancement works at Northpoint, which caused occupancy at the mall to fall to as low as 47.6%. 
  • Its crown jewel Causeway Point kept its occupancy above 99% throughout this period, with positive rental reversions of 7.3%-18.9%. 

Market could be concerned over possible entry into Australia 

  • Given Singapore’s relatively small market size and difficulty in finding attractive acquisition targets, we believe FCT may look overseas for inorganic growth opportunities, with Australia a likely destination. 
  • Concerns over FCT’s possible entry into a new market may be one of the factors contributing to its recent share price correction. During its sponsor Frasers Centrepoint Limited’s (FCL) last analyst briefing, it was highlighted that there was a possibility for FCT to acquire assets in Australia. 
  • FCL also announced in Oct this year that its Frasers Property Australia (FPA) arm would be launching a new retail business unit. FPA has plans to grow its retail portfolio from A$300m to A$1b in the next three to five years. These assets may potentially be divested to FCT. 
  • However, this would likely only be a medium-to-long term strategy, in our view, as FPA needs time to build up its retail scale. Hence we believe the market may have over-reacted to this. 

Maintain BUY 

  • We reiterate our BUY rating and S$2.25 fair value estimate on FCT. 
  • The stock offers an attractive FY16F distribution yield of 6.4%. This is slightly more than one standard deviation above its 5-year average forward mean of 6.0%. 

Wong Teck Ching Andy CIMB Securities | http://research.itradecimb.com/ 2015-12-02
CIMB Securities SGX Stock Analyst Report BUY MAINTAIN BUY 2.25 Same 2.25