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DBS and Maybank KE positive on FCT, but RHB less so

Lim Hui Jie
Lim Hui Jie11/5/2021 04:03 PM GMT+08  • 3 min read
DBS and Maybank KE positive on FCT, but RHB less so
DBS and Maybank are more positive on the impact that Singapore's reopening has on FCT.
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Analysts from DBS Group Research and Maybank Kim Eng have maintained their “buy” calls on Frasers Centrepoint Trust (FCT), with both brokerages handing the stock target prices of $2.90.

DBS analysts Geraldine Wong and Derek Tan write that, “In the face of retail headwinds, we remain convinced that FCT’s portfolio of suburban malls is well-anchored against the recent tightening measures.”

Furthermore, they note that FCT’s tenant sales “continue to surprise” at about 95% of normalised levels across Phase 2 heightened alert (P2HA) months, and a trough of about 80% of normalised levels.

Wong and Tan think that while Singaporeans get used to periodic lockdowns and plan their lives around restriction measures, dominant suburban malls continue to benefit from the work-from-home trend with prime slots changing hands quickly and negative reversions on the brink of a reversal.

See: Analysts optimistic on FCT, UOB KH saying it is ‘ready to pounce’ when opportunities arise

The analysts also see that FCT has more deals in the pipeline, saying that it remains robust with the prospective acquisition of Northpoint City South Wing and further stakes in Waterway point on the horizon.

See also: Brokers' Digest: Mapletree Industrial Trust, IREIT Global, Jumbo Group, Netlink NBN Trust, PropNex

Central Plaza (linked to Tiong Bahru Plaza) is another possible asset where value can be crystalised.

“With the divestment of three non-core malls, gearing is now reduced to 33.3%, leaving ample debt headroom for acquisitions,” they say.

Maybank’s Chua Su Tye notes that the stronger occupancy in FCT “de-risks” expiries in FY2022, saying it has de-risked about 25% of the approximately 900,000 sq ft of leases expiring in FY2022, which are in advanced negotiations, according to management.

See also: Top Glove unlikely to turn profitable in the near term: Maybank

“We expect occupancies to be resilient, with the leases concentrated at its larger destination malls, Causeway Point (23%) and Waterway Point (17%),” Chua writes.

In addition, while shopper traffic in 4QFY2021 was at 56-59% of pre-Covid levels, its tenant sales were better at 93-98%, ahead of CapitaLand Integrated Commercial Trust’s (CICT) 92.4% for its suburban malls, and Suntec Reit’s figure of about 67%.

Chua sees both metrics being on a positive trajectory in FY2022, with rental reversion at -0.6% for FY2021, versus -0.7% in 1HFY2021, with better performance at Causeway Point and Northpoint versus Changi City Point.

Occupancy costs have also improved y-o-y to 17.5% in FY2021 from 19.2%, and “while we expect reversions will likely be flattish in 1H22, it should improve as tenant sales gain traction.”

On the other hand, RHB Group Research is less positive on the stock, giving a “neutral” rating and target price of $2.45.

For more stories about where the money flows, click here for our Capital section

While analyst Vijay Natarajan notes largely the same points as his counterparts, he is of the view that Singapore’s anticipated reopening is a positive for the retail sector, but the impact could be slightly muted for FCT as increased capacity limits should be partially offset by more people returning to the office.

Nonetheless, he points out that its suburban malls remain resilient with tenant sales inching closer to pre-pandemic levels. “We believe valuation of 1x P/BV is fair, and recommend investors to buy on dips.”

As at 3.49pm, shares of FCT traded at $2.35, with a FY2022 price to earnings ratio of 19.6 and dividend yield of 5.4%, according to DBS.

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