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Frasers Centrepoint Trust - DBS Research 2016-04-25: Kick-starting Northpoint’s AEI

Frasers Centrepoint Trust - DBS Research 2016-04-25: Kick-starting Northpoint’s AEI FRASERS CENTREPOINT TRUST J69U.SI 

Frasers Centrepoint Trust - Kick-starting Northpoint’s AEI 

  • 2QFY16 DPU in line with forecast 
  • Positive rental reversions of 5.6% achieved 
  • Northpoint’s AEI kick-started with conservative capex and rental growth estimates 
  • Adjust TP and DPU slightly downwards, maintain BUY 


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

  • We maintain our BUY recommendation, with a revised TP of S$2.10. 
  • While many other S-REITs are expected to face declining DPU over the next couple of years due to the slowing Singapore economy, FCT offers investors a steady DPU profile. 
  • While we estimate higher management fees payable in the form of units over FY16-17F due to ongoing refurbishment works at Northpoint, expected earnings growth post completion of the refurbishment should negate any near-term dilution from the expanded share base. 

Near-monopoly of shopping malls in the north. 

  • Northpoint and Causeway Point together contribute c.71% 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 strong population growth (88% over the next five to ten years), we believe that FCT will be a beneficiary of increase in retail spending and demand for shop space. 

Earnings kicker upon integration of Northpoint with Northpoint City in 2018. 

  • Upon the completion of the AEI and integration of Northpoint and Northpoint City in 2018, the quality of FCT’s earnings will improve. Its position in the North will be further strengthened from an expanded footprint. 

Valuation: 

  • Our DCF-backed TP is S$2.10, after imputing the Northpoint AEI. The stock offers a total return of > 10%. 

Key Risks to Our View: 

  • Near-term fall in NPI margin. As Northpoint’s average occupancy drops to 76% during its AEI period (Mar 2016-Sep 2017), some narrowing in the portfolio NPI margin is expected. 
  • Interest rate risks. About 74% of current borrowings have been hedged into fixed rate debt, distributions could therefore be impacted by near-term interest rate volatility. 




Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-04-25
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.10 Down 2.11


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