Frasers Centrepoint Trust - DBS Research 2016-01-06: Northern lights

Frasers Centrepoint Trust - DBS Research 2016-01-06: Northern lights FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Northern lights


FCT is one of our top picks in the retail sector. 

  • We maintain our BUY recommendation, with TP of S$2.20. 
  • We believe that Causeway Point, which accounts for 46% of the Trust’s net profit income, will continue to surprise on the upside and support price performance. 

Near-monopoly of shopping malls in the north. 

  • Northpoint and Causeway Point together contribute c.75% of FCT’s NPI. Both malls have performed well in recent years, delivering strong tenant sales growth and rental reversions after successful AEI works. 
  • With limited retail supply in the north of Singapore and an increasingly affluent population catchment, we believe that FCT will be a beneficiary of higher spending power and demand for shop space. 

Upside to rental reversions given low occupancy cost. 

  • Despite slower reversions of 3.8% for 2QFY15, we are positive about underlying mall performance, and expect to see overall FY15 reversions of 6-7%. 
  • Occupancy costs dipped below 16% due to strong tenant sales growth at Causeway Point. 
  • On a portfolio basis, tenant sales rose 3.0% y-o-y while foot traffic recorded healthy 2.0% growth. 


Valuation: 

  • We have a DCF-backed TP of S$2.04, based on a WACC of 6.5%, risk-free rate of 2.8% and terminal growth assumption of 1.5% p.a. 
  • At its current price, FCT offers investors a dividend yield of 6.4% and 17% total return. 


Key Risks to Our View: 


Stronger pick-up in tenant sales 

  • Our rental reversion assumptions are predicated on the generally weaker retail sales outlook in Singapore. 
  • We note that tenant sales for FCT’s portfolio have bucked the retail sales index (RSI) growth trend, and sustained outperformance could result in further positive re-rating of our DPU estimates.



Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-01-06
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.04 Same 2.04


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