FrasersCT – DMG

FCT posted an in-line set of 2Q07 results with distributable income exceeding IPO forecast by 14.4% to $10.3m (DPU: 1.67cts), thanks to higher rental and other income. Going forward, the focal point of FCT would be on its asset enhancement and acquisition activities. Over the next 2 years, Anchorpoint would be repositioned as a F&B-focussed village mall while retail areas at Causeway Point and Northpoint would be reconfigured to increase returns. In terms of acquisition, its plan to double floor space under management is certain but would happen only from early FY09 onwards.

FCT is currently trading at FY07 yield of 3.7% and P/book NAV of 1.1.57x, indicating much of its growth expectations could have been priced in. We have raised price target to $1.86 but lower our call to Hold on valuation grounds.

Results in line with expectations. Distributable income was 14.4% ahead of IPO forecast to $10.3m (DPU: 1.67cts) while topline came in 3.9% ahead of projections to $19.6m. The better performance was due to higher rental income and lower than projected operating expenses.

Lifted by greater rental and other income. The rise in revenue was due to a threefold increase in turnover rent during the Chinese New Year period. Higher patronage during this festive period also resulted in increased carpark and casual leasing income. During the quarter, a small 0.4% of FCT’s portfolio was renewed, however, rentals achieved were at a significant 10% above the preceeding level.

FCT offers significant organic growth potential. Going forward, the focus for FCT would be on its AEI and acquisition potential. Enhancement activities at Anchorpoint are scheduled to begin in May 07. It would also look to boost returns from Causeway Point and Northpoint by reconfiguring and rejigging tenant mix when the leases are up for renewal. An estimated 45% and 50% of NLA at Causeway Point and Northpoint are expiring over the next 18 months. .

Acquisition pipeline is certain. FCT is committed to double the area under management to 1.3msf NLA in the medium term. In the pipeline are Northpoint 2 and YewTee Point, scheduled to complete in early FY09, as well as the Bedok Town Centre and Centrepoint. Together, these properties could provide a further 0.63msf GFA.

Raised price target to $1.86 but downgrade to Hold. While we still like FCT for its strong organic growth potential and visible pipeline, this appears to have been largely factored into share price. The stock is trading at FY07-FY08 yields of 3.7-4.4% and P/book NAV of 1.57x. Our price target of $1.86, based on doubling asset base to $2b, offers less than 10% upside.