Author: tfwee
FCT – DMG
Strong earnings; BUY on defensive strengths
Maintain BUY for its defensive strengths. FCT reported 4QFY09 results DPU of 2.04¢ (-0.5% YoY) and 7.51¢ for FY09, 6% above our estimate. Net property income rose 24.9% due to Northpoint’s enhancement initiative and cost management measures. The better-than-expected earnings were largely due to the strong rental reversion from Northpoint following its AEI. FCT will trade ex-4QFY09 distribution on 29 October 2009. We raise our FY10 DPU estimate by 7.6% to 8.26¢, providing an implied yield of 6.6%. Maintain BUY, DDM-based TP of S$1.53.
3.5% capital value gains. FCT reported a 3.5% YoY gain in capital values to S$1.1b despite the 50bp increase in cap rate to 5.75-5.90%. This was largely due to the strong increase in its net property income. Management alluded that cap rates are unlikely to rise further under the current economic environment. We project NPI from the existing assets to rise by 7% in FY10, bringing about a corresponding increase in capital values, and a fall in gearing. We expect FCT’s gearing to hover below 30% in FY10.
Acquisition in the works? With its strong balance sheet, FCT has substantial debt headroom to acquire new assets. We expect Northpoint 2 and YewTee Point to be acquired within the next 12 months. We value both assets at ~S$300m, with NPI yields between 5.7-6.1%, above its WACC cost of 5.2%. With the acquisitions, FCT’s AUM will grow by 28% to S$1.4b by end-2010. Our valuation assumes the acquisition of these assets by mid-FY10.
Expanded AUM may address liquidity and compress yields further. With a low cost of equity, we expect the above acquisitions to be accretive, strengthening FCT’s retail oligopoly status in the northern region of Singapore. With an expanded AUM and equity base, concerns over FCT’s poor stock liquidity will be addressed. We expect a further re-rating on the stock as yields could compress closer to its 5% heyday levels seen in 2006-08. At our TP, FCT trades at 5.4% FY10 yield, a reasonable peg, in our view. Note that FCT traded at 4.6% during heydays of 2006 and 2007, suggesting that the stock has further legs to ride up the economic recovery.
MLT – Nomura
First look
The deterioration in leasing markets now appears to be manifesting itself in MLT’s core property portfolio. 3Q09 results were characterised by a 2.3% q-q fall in gross property income, a 6.5% q-q rise in outgoings and a 3.5% q-q fall in net income as portfolio occupancy fell 1.2pp q-q to 97.1%. We expect lower rental growth expectations to impact capitalisation rates and valuations, and, ultimately, MLT’s book value of S$0.88/unit. REDUCE maintained, with a PT of S$0.48/unit.
Property income down 3.5% q-q
CCT – DBS
Awaiting blue skies
• Results in line with estimates
• Leasing environment to turn challenging in 2010
• Downgrade to HOLD, TP S$1.02
Performance in line. CCT reported 3Q09 results in line with our expectations. Gross revenues increased to S$102.6m (+10.9% yoy) and net property income (+15.5% yoy) as a result of continued positive rental reversions achieved at its portfolio. As of 3Q09, CCT’s average portfolio rent increased by c17%yoy, 3%qoq to S$8.49 psf per month. Distributable income came in at 21% higher yoy to S$45.9m (+21% yoy), translating to a DPU of 1.85 Scts.
Lowly geared. Balance sheet remains strong with gearing at 31.2%, interest cover at a healthy 3.1x. NAV per share stands at S$1.49.
Leasing environment to turn challenging in 2010. With the office sector continuing to face a daunting supply over the next 3 years, we expect the operating environment to remain soft in FY10-11F. With average passing rents in FY10-11 higher than current asking rent levels, topline is expected to weaken from projective negative reversions during renewals.
Downgrade to HOLD, TP S$1.02. We are downgrading our call to a HOLD, but lifted our TP to S$1.02 on the back of lower cost of equity assumptions. While stock is trading at P/BV of 0.7x, offering prospective FY10F-11F yields of 6.5% a muted office outlook is also likely to mean a lack of rerating catalysts for the stock in the near term from current levels. As such, we downgrade to HOLD on valuation grounds given the limited upside to our target price.
CMT – Nomura
First look
CMT’s 3Q09 highlighted a slip in gross and net income in the group’s core mall portfolio. Excluding Raffles City, gross income from its retail malls fell 0.6% q-q as negative reversions took hold. Rising retail supply and continued cautious consumer spending will weigh on the outlook for rents, in our view, with some 36.2% of CMT’s leases up for renewal (by gross income) in 2010. With shares trading at 1.1x P/B, we retain our REDUCE rating. Price target S$1.28/unit.
Core mall rents slipping