FCT – CIMB

Strongly centred

FCT’s 1QFY9/14 results were largely in line, with DPU coming in at 23% of our FY13 number. Revenue growth of 5% yoy and NPI growth of 4.4% yoy enabled 1Q to achieve 24-25% of our full-year forecasts. Thanks to strong performances from its malls, FCT is fundamentally solid and, in our view, resilient to any external headwinds. We expect the acquisition of Changi City Point to contribute to the next stage of growth. We maintain our Add rating

with an unchanged DDM-based target price (discount rate: 8.4%) of S$2.05 as we await further acquisition news.

Strong portfolio

1QFY14 revenue came in at S$38.9m (+5.0% yoy) while DPU was 2.50 S¢ (+4.2%). The strong showing was mainly attributed to the good performance of the two larger malls in the portfolio, namely Causeway Point and Northpoint which accounted for 79% of total earnings in 1QFY14 and showed rental growth of 15.4% and 7.3%, respectively. YewTee Point also performed better, with occupancy improving to 97.1% from 92.7% in 4Q13. However, Bedok Point’s occupancy declined to 80.2% from 96.7% a quarter ago as a result of the ongoing renovation of shop spaces for incoming tenants.

Expect next growth driver from acquisition

With 19.7% and 39.9% of leases (as % of total NLA) due to be renewed in FY14 and FY15, respectively and most of these leases concentrated at Northpoint and Causeway Point, we believe that FCT will continue to post positive rental reversion for years to come. Apart from rental reversions, we expect the next growth driver to come from the acquisition of Changi City Point, which we speculate will be completed in FY14.

Maintain Add

Although the occupancy at Bedok Point may seem worrying on the surface management remained confident that its occupancy will rebound to above 90% by May when the fittings are completed. On the back of a solid portfolio, room for further rental reversions, a potential acquisition deal and strong balance sheet, we continue to favour FCT. We maintain our Add rating and DDM-based target price of S$2.05.