Frasers Centrepoint Trust - DBS Research 2016-03-07: Igniting the northern star

Frasers Centrepoint Trust - DBS Research 2016-03-07: Igniting the northern star FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Igniting the northern star 

  • Northpoint AEI to accelerate growth for FCT in the medium term 
  • Investors over-concerned about the impact of AEI on DPU; we believe Manager has sufficient flexibility and buffer to maintain returns 
  • BUY call maintained, TP revised to S$2.11 

Northpoint AEI is a quantum leap forward. 

  • We remain excited about the planned AEI and integration of the Northpoint asset with the extension wing currently built by the Sponsor. With an enlarged footprint, we see Northpoint as a key driver in accelerating growth in the medium term. 
  • Our positive stance comes from the group having close to 75% market share of retail malls (comparable malls basis), and entrenching itself further as a major player in the northern part of Singapore. 
  • We are positive on the AEI given that 
    1. the northern region has the lowest retail space density in Singapore; and 
    2. the fast population growth in the North region should support retail spending in the medium term. 

Northpoint’s AEI and integration with upcoming Northpoint City will be value accretive and DPU enhancing. 

  • Investors have been overly-concerned about the impact of rising vacancies on distributions in FY16-17F. While we expect shorter term volatility in earnings, we see the Manager having enough flexibility to maintain DPU from 
    1. tweaking management fees; 
    2. driving performance from its other malls; and 
    3. keeping a close lid on costs. 
  • We have assumed 11.5% ROI on estimated capex of S$45m in our forecast, and believe this return is achievable given historical returns of 11%-17% on FCT’s AEI. 
  • We have revised our DPU estimates to 11.89-12.07Scts (forward yield 6.1-6.2%) over FY16F-18F. 

Maintain BUY; TP revised to S$2.11. 

  • We believe FCT offers a steady and sustainable DPU outlook, due to its stable portfolio of suburban malls and its current conservative management fee structure, despite the temporary reduction in revenue from Northpoint’s 18-month AEI period. 
  • FCT will be a beneficiary of the fast growing population in northern Singapore due to its near-monopoly market share of shopping space in the area.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-03-07
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.11 Up 2.04