Brokers' Digest 929

Price targets:

$2.23 BUY (OCBC Investment Research)

OCBC Investment Research is keeping its “buy” call on Frasers Centrepoint Trust (FCT), but with a lower target price of $2.23, down from $3.07 previously.

Although FCT has been delivering positive DPU growth every year since it listed in July 2006, with a CAGR of 5.5%, this track record may be broken this year, no thanks to the Covid-19 outbreak.

FCT owns suburban malls in Singapore, which have historically been more defensive and resilient in nature given their dominant positions in their respective catchment areas.

In an April 14 report, OCBC notes that there’s an overhang in FCT’s near-term outlook from the Covid-19 (Temporary Measures) Bill, which is aimed to provide temporary relief to businesses and individuals who are not able to fulfil their contractual obligations due to pandemic.

Tenants with leases at non-residential immovable property are allowed to defer their rental payments for six months for contracts which were entered into or renewed before March 25, and up to a year, without fear of legal action.

“Although the Bill appears onerous on a landlord’s perspective at first glance, it should be noted that the tenant must show that it is unable to pay rents, and not just that its business has been adversely affected by Covid-19,” says OCBC.

Meanwhile, FCT’s gearing ratio as at Dec 31, 2019, is at a healthy 33.2%. It has $188 million worth of debt maturing in 2Q2020 to 4Q2020.

“From our understanding, FCT also had total revolving credit facilities of about $310 million, of which $160 million had been used to refinance two medium term note tranches which forms the bulk of the $188 million of debt maturing in Fy2020.

“Another $40 million would be utilised for working capital needs and thus a balance of $110 million remains for future use,” says OCBC.

From its 1QFY2020 results, FCT holds some $53.6 million worth of security deposits, which is the equivalent of 3.5 months of total rental income. Under OCBC’s base case scenario, it is assumed that 20% of the tenants of FCT will seek the six-month rental deferment, as well as lower rental and occupancy rates. Its FY2020 DPU forecast has been cut by 13.3% and for FY2021, cut by 6.4%. — By Samantha Chiew

Sasseur REIT

Price targets:

80 cents BUY (DBS Group Research)

Pent-up demand within the consumer discretionary space as China comes out of a lockdown could benefit Sasseur REIT’s outlet malls, according to DBS Group Research.

All four outlet malls in the REIT’s portfolio reopened around mid-March, and shoppers have come flocking back.

“Reopening sales had since been launched at all outlet malls and saw encouraging first day sales that were 129% higher than that achieved during the corresponding lates last year on a blended basis,” says analyst Derek Tan in an April 14 report.

“We project FY2020 tenant sales to fall 15% y-o-y due to the temporary closure of malls in 1Q2020, and a rebound in FY2021 back to FY2019 levels,” says Tan, who is keeping his “buy” call but with a lower target price of 80 cents from 93 cents previously.

Tan believes Sasseur REIT has the potential to more than quadruple the gross floor area of its initial portfolio, based on the assumption that it will eventually exercise its right to buy over two properties, plus seven others in the pipeline from its sponsor.

He notes that with a gearing ratio of 27.8%, the REIT has a $305 million debt headroom to fund the acquisitions. — By Stanislaus Jude Chan

Oxley Holdings

Price targets:

31 cents BUY (RHB Group Research)

48 cents BUY (UOB Kay Hian Research)

Oxley Holdings is putting new projects on hold as it aims to conserve cash to ensure its survival amid the Covid-19 pandemic. But analysts are optimistic that the developer will be able to ride out the challenging times ahead.

“[Oxley’s] primary goal is to conserve and accumulate cash to settle the maturing debt,” says Timothy Ang, a credit analyst at Phillip Securities Research, in a note released on April 13.

“Key loans to note are corporate debt and bonds, which have to be paid at maturity,” he adds. “$150 million of bonds maturing in May 2020 are expected to be redeemed with existing cash.”

The company has cash on hand of $323 million as at end December 2019. “Cash flow visibility shows adequate cover for maturing debt for the next two years, assuming projects are completed on time,” Ang says.

The management has guided that it will not be entering into any new construction projects. Instead, it will focus on completing projects with most achieved sales to receive sales proceeds, as well as drive Singapore project sales by compressing margins.

“Projects put on hold include Mozac in Vietnam and parts of Oxley Towers Kuala Lumpur,” Ang says, noting that construction for other parts of the Malaysia project will still continue and is expected to unlock existing progress billings of $114 million.

While the project completions have been delayed, the analyst says Oxley has “no cash flow issues for now”.

Indeed, “cash flow survival is key,” says RHB Group Research analyst Jarick Seet, who expects Oxley’s overseas projects to be delayed by three to six months — depending on whether the global Covid-19 lockdown is extended — due to shut down orders and constrained supply chains.

However, he notes that the management is maintaining the sales target of its local portfolio by end-2020 and does not rule out lowering prices to attain faster sales.

“The company still aims to clear at least 90% of the local portfolio by end-2020,” Seet says in an April 13 report. “Management is comfortable with its current cash position and keen to reward shareholders with a special dividend this year.”

“Based on its track record, key management has always opted for scrip dividend, so even with a special dividend being paid, the company would likely be able to easily stump up cash for minority shareholders,” he adds.

RHB is keeping its “buy” call on Oxley, and lowering its target price to 31 cents, from 36 cents previously, on the back of lower revalued net asset value (RNAV) valuations.

Meanwhile, Oxley’s Chevron House deal has also been delayed due to the global lockdown.

“$295 million remains to be received from the Chevron House sale,” says Phillip’s Ang. “If the retail podium is not sold by June 30, 2020, Oxley will have to purchase it at a steep discount from valuation and attempt to sell it in the market at current valuation at a profit.” — By Stanislaus Jude Chan