Frasers Centrepoint Trust - DBS Research 2019-07-11: Shooting For The Stars

FRASERS CENTREPOINT TRUST (SGX:J69U) | SGinvestors.io FRASERS CENTREPOINT TRUST (SGX:J69U)

Frasers Centrepoint Trust - Shooting For The Stars

  • Stakes in PGIM’s AsiaRetail fund and Waterway Point have sparked a transformation in Frasers Centrepoint Trust’s growth outlook.
  • A lower-for-longer interest rate environment further fuels its acquisition capacity.
  • Target Price raised to S$2.95 as we lower our risk-free assumptions by 50 bps to 2.5%.
  • Maintain BUY.



Target Price raised to S$2.95

  • Target Price raised to S$2.95 as a sustained low-interest environment could take FTSE EPRA/Nareit Index aspirant FRASERS CENTREPOINT TRUST (SGX:J69U) to greater heights.
  • We are positive on Frasers Centrepoint Trust’s moves to acquire stakes in PGIM’s AsiaRetail fund and Waterway Point, which have transformed the group’s growth profile entirely, in our opinion.
  • DPU is now projected to grow at a 2.8% CAGR over FY18-21F vs c.1% p.a. previously – which places Frasers Centrepoint Trust favourably among the fastest-growing REITs.
  • Unitholders can potentially enjoy Frasers Centrepoint Trust’s share of divestment gains for Liang Court (which concluded in end-May) of approximately 1.1 Scts per unit. In addition, the successful inclusion in the FTSE EPRA/Nareit index in the medium term could drive a further share price re-rating.
  • Our Target Price is raised to S$2.95 after lowering risk-free assumptions by 50bps, implying a 4.3% target yield.


Where we differ:

  • We like Frasers Centrepoint Trust for the defensive attributes of its suburban exposure and firm growth pipeline. All of Frasers Centrepoint Trust’s properties are suburban malls, which have proven to be resilient across market cycles. While we anticipate a more balanced rent outlook, we believe the merits of its resilient portfolio, addition of growth engine Waterway Point and enlarged acquisition pipeline should continue to draw interest to the stock, given volatile times.


Potential catalyst:

  • Acquisitions, particularly a larger 50% stake in Waterway Point, could boost FY20F DPU by another 4-5% if fully funded via debt.


Valuation:

  • Maintain BUY; Target Price raised to S$2.95.
  • While implied FY20F target yield of 4.3% is above +1SD of Frasers Centrepoint Trust’s historical valuation, this is supported by Frasers Centrepoint Trust’s longer growth runway post moves to acquire stakes in PGIM’s AsiaRetail fund and Waterway Point.


Key Risks to Our View:

  • Interest rate risks. Exposure to floating interest rates could increase the REIT’s finance cost, thereby pressuring DPU, should interest rates creep up unexpectedly.





Carmen TAY DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-07-11
SGX Stock Analyst Report BUY MAINTAIN BUY 2.95 UP 2.850



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