SINGAPORE (Apr 26): Maybank Kim Eng, CIMB and OCBC are maintaining their “buy” recommendations on Frasers Centrepoint Trust (FCT) with the respective target prices of $2.55, $2.41 and $2.49.
On the other hand, Phillip Capital is reiterating its “neutral” rating on the trust with a $2.14 target price.
This follows the announcement of FCT’s latest 2Q results, which came in line with both research houses’ expectations with a 2% higher DPU of 3.10 cents from 3.04 cent a year ago.
See: Frasers Centrepoint Trust's 2Q DPU up 2% to 3.1 cents
In a Wednesday report, Maybank analyst Chua Su Tye highlights FCT as his preferred retail pick for its strengthening suburban mall footprint, visible growth drivers, and potential acquisition catalysts – although he remains cautious on retail REITs in general given the structural challenges they face from e-commerce disruption and sales leakage.
In particular, Chua believes the REIT’s valuations are currently undemanding at its last closing unit price of $2.22, which implies a FY18-19 yield of 5.3-5.7%.
“Following the completion of AEI at Northpoint City, we see support on valuations. DPU yield, now close to the 11-year historical mean, have not fully priced in the stronger rental reversions and possible upside from acquisitions,” he opines.
Likewise, CIMB lead analyst Lock Mun Yee is expecting FCT’s earnings growth to be driven by upcoming renewals in 2H18-19 and a better showing from Northpoint North Wing (NPNW) post its AEI.
She further highlights FCT’s gearing as one of the lowest among its peers at 29.2% as at end-2Q.
“Assuming a target gearing of 40%, FCT would have c.$426 million of debt headroom for new acquisitions. The trust is well positioned to explore inorganic growth prospects through its Sponsor’s pipeline in Singapore or overseas markets,” says Lock.
“We continue to like FCT 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,” adds the analyst.
While OCBC analyst Andy Wong is notes there is a period of stabilisation needed for NPNW to begin contributing positively post AEI works, he highlights that most tenants are currently trading well and also likes the trust for its healthy balance sheet and ample debt headroom for acquisitions.
However, Wong remains cognisant that only 56% of FCT’s borrowings are fixed or hedged, which is below the industry average, and maintains his forecasts and fair value estimate on the REIT given its in-line set of results.
Phillip Capital’s valuations of FCT translate to a FY18E yield of 5.7% and P/NAV of 1.06 times, which its analyst Dehong Tan says in line with average post-GFC yields.
Nonetheless, Tan says he is positive on the recent completion of AEI at NPNW, which he thinks will continue to be the main earnings catalyst for FCT for FY18 as the mall ramps up its occupancy.
“We also expect a gradual normalisation of the percentage of management fees to be paid in units towards 20%. Only major risk to DPU is a sharp rise in interest rates given that 44% of debt is on floating rate,” says Tan.
As at 11.39am, units in FCT are trading 1 cent higher at $2.22, or 1.1 times FY18 book based on Maybank estimates.
