FCT – DMG

All time new high

2QFY12 DPU in line with expectations. Frasers Centrepoint Trust (FCT) reported a strong 2QFY12 DPU of 2.50S¢ (+20.8% YoY). Together with 1QDPU of 2.20S¢, 1H12 results translates to 50.5% of our FY12 DPU estimate. Revenue for 2QFY12 grew to S$36.7m (+27.4% YoY) while net property income rose to S$26.2m (+30.4% YoY). These strong growths are mainly attributed to additional contributions from Causeway Point (CWP) and the acquisitions at Bedok Point. In the subsequent quarters, we expect FCT to register stronger numbers on the back of 1) increased contributions from CWP as average occupancy and rental rates continue to pick up from its lows during the initial stage of AEI, 2) new contributions from Bedok Point and 3) positive rental reversions in suburban malls to continue. Given FCT’s well positioned malls, together with its defensive play, we maintain our BUY call on FCT with an unchanged DDM based (COE: 8.8%, terminal growth: 2.0%) TP of S$1.77. With FCT currently trading at 4.7% spread vs the historical mean of 4.0%, our TP represents a spread of 3.9% posting a potential upside of 13.8%

Suburban malls concentrating in high shopper traffic area. Going forward, we expect market confidence for rental rates in suburban malls to remain as international brands continue to take up space in malls with high shopper traffic. Currently, all five of FCT’s malls are located in high population catchment areas with an expected average shopper traffic of 33m/year for 2 of its larger malls (Causeway point & Northpoint) and 8m/year for its smaller malls (Bedok Point, YewTee Point & Anchorpoint).

Additional contributions from Causeway point and Bedok point. In the subsequent months, we expect FCT’s DPU to continue to grow on the back of additional contributions from both CWP and Bedok Point. Currently, works at CWP are on track for full completion by December 2012, while Bedok Point continues to grow strongly; contributing S$3.05m (+6.3% QoQ) to the group’s 2QFY12 revenue.

Respectable growth expected in 2012. As the outlook for suburban malls remains strong, together with respectable DPU growth for the rest of the year, we continue to maintain our BUY rating with a TP of S$1.77.