Frasers Centrepoint Trust - RHB Invest 2017-04-26: 2QFY17 Results Flash Note ~ Catalysts Remain Despite External Headwinds

Frasers Centrepoint Trust - RHB Invest 2017-04-26: 2QFY17 Results Flash Note~  Catalysts Remain Despite External Headwinds FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - 2QFY17 Results Flash Note~ Catalysts Remain Despite External Headwinds

  • We retain our BUY rating, forecast and DDM-derived TP (CoE: 7.4%, Tg: 1.8%) of SGD2.22. The stock offers FY17F dividend yield of 5.7%.


  • Fraser Centrepoint Trusts (FCT) 2QFY17 DPU was unchanged YoY at 3.04 cents bringing 1HFY17 DPU to 5.93 cents (+0.4% YoY). 2Q results were in-line meeting 25% of our full-year forecasts.
  • Gross revenue and NPI for the quarter declined 2.9% YoY and 3.3% YoY mainly due to the planned vacancies arising from AEI works at Northpoint mall. Distributable income was however up 0.4% as management took 70% of its management fees in units compared to 50% last year. In 1HFY17, FCT has retained SGD 1.5m of distributable income which it plans to distribute at the end of the year.
  • Overall portfolio occupancy declined 4.1ppt QoQ to 87.2% mainly due to the AEIs at Northpoint.
  • Gearing remains unchanged QoQ at 29.7% while interest cost edged up slightly to 2.2% from 2.1% in previous quarter. FCT has hedged about 57% of its debt. NAV/unit remains unchanged at SGD 1.93.

Key takeaways

  • 2QFY17 rent reversions remained positive +4.1% (1Q:+6.9%) despite tough retail climate with strong reversions at its key suburban malls Causeway Point (+6.3%), Changi City Point (+21.7%) and Northpoint (+3.3%). The only mall that saw negative rent reversion was Bedok Point (-17.9%) but the mall accounts for only 2.5% of total NPI making the impact negligible.
  • Looking ahead, the key catalyst will be the higher contribution from Northpoint mall with the expected completion of AEI works by Sep 2017. Management expects the occupancy to creep up to 82% and is confident of achieving near full occupancy by the end of the year.
  • About 16% of leases (as % of gross income) is due for renewal in 2HFY17. Despite retail headwinds, we expect FCT to post a mid-single digit rental reversions owing to defensive nature of its sub-urban malls.
  • On the acquisition front, we expect management to acquire at least one asset by the end of the year. Key acquisition target in our view would be the Waterway Point (1/3rd stake owned by sponsor Frasers Centrepoint Limited). Debt headroom remains healthy at > SGD 400m (assuming comfortable gearing of 40%) for further acquisitions.
  • Key concern is the decline in shopper traffic (-3.5% YoY, -7.7% QoQ) and tenant sales (-6.9% YoY excl. Northpoint). However we believe the recent positive economic data should help in lifting consumer sentiments.
  • Despite challenging retail outlook for 2017 we believe FCT’s suburban mall portfolio and a proactive management will able to wither the challenges. Key catalysts ahead are completion of Northpoint AEI, acquisition of new mall and potential divestment of Bedok Point.
  • Maintain BUY with an unchanged TP of SGD 2.22.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-26
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.220 Same 2.220