Month: May 2012
FCOT – DBSV
On track to unlocking more value
Enhancing China Square Precinct. Frasers Commercial Trust (“FCOT”) together with Far East Organization (“FEO”) and The Great Eastern Life Assurance announced that they will be undertaking asset enhancement initiatives (AEI) to revitalise the China Square Precinct. The AEI works under the China Square Precinct Master Plan is expected to improve connectivity and integrate the companies’ respective developments, namely China Square Central (“CSC”), Far East Square and Great Eastern Centre, into a precinct known as “China Place.” One of the key features of the China Square Precinct Master Plan is the construction of a covered link way between the three properties and future Telok Ayer MRT station. The link way will cost an estimated S$14m which will be shared equally among the three partners. This project will commence in June 2012, and targeted for completion by February 2013. Separately, FEO is planning two hotel developments within Far East Square. These developments comprise a 37-room designer boutique hotel that will be converted from offices within the conservation shop houses, and a new 28-storey 292-room hotel.
Impact on FCOT:
More room to drive rents and occupancy up. While impact on earning is minimal in the shorter term, we view this exercise positive for CSC as this will help to improve connectivity to the MRT station and inject more vibrancy to the area, enabling it to better compete with surrounding properties in view of the upcoming supply. This would pave the way for FCOT to optimize CSC’s retail mix and at the same time drive up occupancy, which is at 91% and raise signing rents if possible, which is currently >S$6 psf per month. We believe more value could be extracted from CSC including the possibility of a hotel development in the longer term. CSC contributed about 18% to FCOT NPI in 2Q12.
Strong balance sheet. Gearing is expected to remain unchanged at its current level of 36.1%. We expect FCOT to fund its c.S$4.6m portion by internal sources including the sales proceeds from its recent sale of Keypoint.
Maintain BUY, more upside from the coming refinancing. We continue to like FCOT for its undemanding valuation at 0.7x P/BV and attractive FY12/13F yields of 6.4 – 7.5%. Since the beginning of last year, FCOT has been taking pro-active steps to reshape its portfolio and strengthen its balance sheet. We expect to see more upside in earnings when the company refinances its S$500m SGD loan due in November this year at a more attractive interest rate. Maintain BUY at an unchanged TP of S$1.24.
CRCT – OCBC
GROWING WITH THE CHINESE CONSUMER
•One-stop shopping destinations
•Growing Chinese consumption
•Acquisition and asset enhancement
Quality assets with good location
Located in mainland China, CRCT’s retail malls are positioned as onestop family-oriented shopping, dining and entertainment destinations for areas with large population catchment. Anchor tenants include Carrefour, Walmart and the Beijing Hualian Group. The majority of CRCT’s exposure is to Beijing, where four out of its nine properties are located. The Beijing malls accounted for 69% of revenue in 2011, with the two larger ones accounting for 51%. Based on FY11 figures, CRCT’s portfolio has an average property yield of 6.5% (based on book valuation), which is attractive compared to Singapore retail property yields of around 5-6%.
Consumption as a pillar of growth
China is pursuing domestic consumption as the key strategy to reduce the economy’s reliance on exports. Consumption is likely to overtake investment as China’s largest driver of growth in 2012 for the first time in over a decade. Increasing urbanization and the continued growth in household disposable income serve as powerful long-term drivers for retail sales, which could grow faster than the GDP for at least the next few years. We note that that a healthy 82% of CRCT’s committed leases have turnover rent provisions. This allows CRCT to see direct upside from growth in retail sales.
Organic and inorganic growth
Partially due to the purchase of CapitaMall Minzhongleyuan last year, a significant 28% of CRCT’s leases by gross rental income is due for expiry in 2012. This should enable it to see good positive rental reversions. CRCT is also looking to enhance the performance of its two largest assets, CapitaMall Xizhimen and CapitaMall Wangjing. The opening of Xizhimen’s basement connection to the subway interchange has led to significantly increased footfall and strong leasing interest.
Initiate with a BUY
We initiate with a BUY rating and a S$1.44 fair value based on a DDM analysis. CRCT is currently trading at an est. FY12 yield of 7.0%.
Fortune – BT
Fortune Reit to pay additional US$58,000 to acquire Belvedere Garden, Provident Centre
Fortune Reit on Friday said it will pay an additional HK$450,000 (US$58,000) for the acquisition of Belvedere Garden and the Provident Centre properties.
The additional consideration comes after an audit, which brought the final aggregate purchase consideration for the acquisition of the new properties to HK$1,931,779,182.
Fortune Reit had paid the aggregate purchase consideration of HK$1,931,328,352 in cash on February 17.
The further aggregate sum of HK$450,830 is to be paid in cash, on or before June 1, 2012.
HPH-Trust – DBSV
Yantian port volumes up 6%
Yantian Port volumes pick up in April. As we had highlighted in our last report, Yantian Port data for April looked more encouraging, with volumes growing 6% y-o-y to 822.5k TEU. YTD volume growth at Yantian Port turned positive for the first time this year, at 1.2%. Over at Hong Kong Port's Kwai Tsing terminals, April volume was slightly higher y-o-y, and YTD volume growth now stands at 3.6% yo-y. Of course, HIT volumes are growing faster than overall Kwai Tsing volumes, as was evident in 1Q12 throughput data for HPH Trust, which showed HIT volumes had grown close to 9% in 1Q, compared to 4.6% growth at Kwai Tsing during
the same period. The higher growth at HIT is partly from higher transhipment volumes handled, and thus, lowers average ASPs for HPHT.
Catalysts falling in place. We had highlighted potential catalysts to stock price from better Yantian Port data as we expected a more sustainable y-o-y recovery in volumes to be noticeable from April 2012 onwards. During discussions, management has indicated that volumes have started to pick up in April and May, and export bookings to the US are looking better, though the European market still remains weak. We are conservative about the economic outlook and estimate that volumes at HIT and Yantian Ports should show modest low, single-digit growth of 2-4% this year, though management remains optimistic of achieving a 5-7% growth.
DPUs secure, maintain BUY with TP of US$0.85. We expect the Trust to meet its DPU guidance of 6.6UScts for FY12, as it can divert some cash reserves earmarked for longer-term growth capex if volume growth in the near term is not strong enough to justify acceleration of new berth developments beyond 2014/15. In 1Q12, the capex outlay was indeed 51% lower than projected. Despite the largely secure yield, share price has been pressured by ongoing macro uncertainties and the Trust is back to trading at 9% yield, which makes it one of the top yielding large caps in Singapore. Our US$0.85 TP is based on DCF valuations (7.8% WACC).
Fortune – OCBC
EXCEEDING EXPECTATIONS
•Beating estimates
•Healthy balance sheet
•AEIs provide good returns
Surpassing forecasts
1Q12 results were above our and the street’s forecasts. Net property income of HK$185m was up 15.1% YoY; 9.9ppt came from organic growth, while the other 5.2ppt was from two properties acquired in mid Feb. Retail continues to remain a bright spot in the HK economy. Average passing rent for the original portfolio rose 11% YoY due to good rental reversions in 2011. Net property income margin declined from 73.6% to 71.5% mainly due to one-off costs associated with the acquisition. DPU climbed 14% QoQ to 7.78 HK cents. With the next three quarters seeing full contributions from the two properties, we raise our FY12 DPU forecast from 29.4 HK cents to 31.7 HK cents, up 20.5% YoY from FY11 DPU.
Strong financial position
As of 31 Mar, Fortune’s effective interest cost is at 2.87%, down by 78bps from 31 Dec 2011. Management believes that it can keep interest cost below 3%. It has an interest cover of 5.3x and a comfortable gearing ratio of 26% and debt headroom of HK$2.6b before reaching the 35% gearing limit. The REIT has no refinancing needs till 2015.
AEIs still on track
By the end of 2012, Fortune City One would have completed its HK$100m asset enhancement initiative (AEI) and looks likely to exceed its ROI target of 15%. Fortune defines ROI conservatively, looking at returns quantifiable within only the first year. Fortune will also undertake a HK$12m AEI at Jubilee in 3Q. We view AEI as a good way to generate returns for unitholders.
Maintain BUY; raise fair value
Fortune is trading at a P/B of 0.5x (NAV per unit of HK$7.81) and an estimated FY12 dividend yield of 7.6%. We maintain our BUY rating and raise our fair value estimate from HK$4.88 to HK$5.22.