Frasers Centrepoint Trust - CIMB Research 2018-01-23: Execution On Track

FRASERS CENTREPOINT TRUST J69U.SI

Frasers Centrepoint Trust - Execution On Track

Frasers Centrepoint Trust's 1QFY9/18 DPU met our expectations, accounting for 24% of our FY18F forecast.
Expect higher portfolio take-up as NPNW’s physical occupancy rises.
Higher rents at NPNW, positive rental reversion to underpin earnings growth.
Maintain ADD with a DDM-based Target Price of S$2.41.

Frasers Centrepoint Trust (FCT) reported a 1QFY9/18 gross revenue/ NPI of S$47.9m/ S$34.5m, up 8.7%/9.1% y-o-y respectively. The improved results were due to a 39.5% y-o-y jump in Northpoint North Wing (NPNW) revenue, on completion of its AEI, and higher rental revenue from Causeway Point (CP) and Changi City Point (CCP).
1QFY18 DPU of 3Scts grew a slower 3.8% y-o-y, as the Manager took a lesser 50% of its fees in units, and made up 24% of our full-year forecast.

Portfolio occupancy rose 0.6% pt q-o-q to 92.6% with higher take-up of 86.8% at Northpoint North Wing.
We expect occupancy rate to trend higher in the coming quarters as more retailers commence operations. The property is 99% leased.
Frasers Centrepoint Trust renewed 8.8% of portfolio NLA in 1QFY9/18 at an average rental reversion of 1%, dragged by a 31.2% downward reversion at Bedok Point. Excluding Bedok Point, rental reversion would have been +3.3%.
Tenant sales and shopper traffic, ex-NPNW, rose 0.2% and 1.4% respectively in 1Q.

Following the completion of the Northpoint North Wing AEI, average rent achieved for the property was 9% higher thanks to tenant remixing and ability to improve rental returns.
Post makeover, F&B tenants make up a larger 36.9% of NLA while fashion, supermarket and services/education trades accounted for a smaller 26.4%. New F&B concepts and brands include Putien, Takezo Ramen and Jinjja!! Chicken, to name a few.

Frasers Centrepoint Trust has another 18.7% of gross rental income expiring for the remainder of FY18 and 26.9% in FY19. The bulk of the FY18 renewals are at Causeway Point (CP), Northpoint North Wing (NPNW) and Changi City Point (CCP) and YewTee Point. We expect the trust to continue achieving positive rental reversion given its well-located suburban malls.
In the medium term, the trust can explore inorganic growth prospects given its low gearing of 29.4%.

We fine-tune our FY19-20F DPU estimates post results. Consequently, our DDM-based Target Price is tweaked higher to S$2.41.
We continue to like Frasers Centrepoint Trust for its exposure to the more stable non-discretionary retail segment.
Upside risk could come from new acquisitions while downside risk could emerge from slower-than-expected rental reversions.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-01-23

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.41 Up 2.380