FCT – CIMB

It’s getting better

FCT’s 2QFY9/14 results were largely in line, with 1H DPU coming in at 51% of our full year forecast. Revenue growth of 2.9% yoy and NPI growth of 6.7% yoy enabled 2Q to achieve 48-51% of our half-year forecast. Thanks to strong performances from its malls, FCT is fundamentally solid. We expect the pcoming S$305m acquisition of Changi City Point (CCP) to contribute to the next stage of growth. We maintain our Add rating and DDM-based target price (discount rate: 8.4%) of S$2.19.

Another stellar quarter

2QFY14 revenue came in at S$41m (+2.9% yoy) while DPU was 2.88 S¢ (+6.7%). The strong showing was mainly attributed to the good performance of most of the malls in the portfolio. During the quarter, Causeway Point and Northpoint achieved rental growth of 9.7% and 10.9%, respectively. Other smaller malls posted strong rental reversion averaging 11.5% though this was partially offset by negative rental reversion (-11.8%) for Bedok Point. Although this quarter’s result is c.2.0% above our expectations, this is largely because it does not yet reflect the higher interest payment that we believe will come through when the acquisition of CCP is completed in c.3Q14.

To benefit from CCP and upcoming lease expiry

Currently, with CCP’s average monthly passing rent at S$9.08 psf, we believe FCT will be able to achieve 20-30% positive rental reversion when the majority of the leases are renewed over the upcoming two years. In addition, with 13.3% and 39.6% of leases (as % of total gross rental income) 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.

Maintain Add

Although the 77% occupancy at Bedok Point may seem worrying on the surface, management indicated that it will recover to above 95% in 2H14 when the leases for several tenants commence. We continue to favour FCT for its solid portfolio, room for further rental reversions and upcoming acquisition of CCP. We maintain our Add rating and target price of S$2.19.