Fair Value : SG$2.17 | Recom : Outperform

In line. FCT’s 4QFY12 core net profit came in within our and market expectations. FCT announced a final DPU of 2.71 cents, bringing FY12 DPU to 10.01 cents (8.32 cents in FY11), slightly above our DPU forecast. FY12 revenue grew strongly by 24.9%, driven mainly by Causeway Point following the substantial completion of the refurbishment works, as well as the first fullyear contribution of Bedok Point. Meanwhile, NPI margin has also improved slightly to 70.9% from 70.1%. NAV/share has increased to SG$1.53 from SG$1.40, mainly due to 4-7% upward revaluation of all properties (except for Bedok Point) as a result of value creation.

FY12 achieved rental reversion of 12.1%. FCT continued with its rental reversion momentum. In 4QFY12, FCT achieved a rental reversion of 8.9%, bringing FY12 average to 12.1%, compared to last year’s 8.6%. The rental growth is also much stronger compared to its peers which are more urban centric, possibly indicating the resilience in spending in suburban malls sustained by the surrounding resident and working population. Moving forward, FCT has a staggered lease renewal schedule over the next three years. 19.8% and 31.5% of its total NLA in the portfolio will expire in FY13-14. We expect rental reversion to hover at around 10% in FY13.

1QFY13 is set to be stronger. We expect FCT’s next quarter’s results to come in much stronger. Apart from the year-end festive season and holidays, occupancy of Causeway Point will also progressively recover to 100%, from the current 87.7%. The mall is currently undergoing refurbishment at level 5 and level 7, and is on track to be handed over in Oct-Dec. This should also bring the overall portfolio occupancy up from 93.6% as at FY12.

Healthy capital management. As a result of the revaluation surpluses and hence the improvement in NAV, FCT’s gearing has lowered to 30.1% from 31.3% last year. Average cost of borrowings is reduced to 2.71% compared to 2.75% in the previous quarter and 3.01% last year. We believe FCT’s balance sheet is healthy enough to embark on acquisition growth. Changi City Point could be injected over the near term.

Risks – Downside to economic growth dampening business activities.

Forecasts. Largely unchanged, after updating the P&L and balance sheet.

Valuation. In view of the regional trend of yield compression, given that the Singapore benchmark 10-year government bond yield has declined to 1.33% from about 1.6% in 1Q, we raise our fair value to SG$2.17 (from SG$1.92), based on a higher cost of equity assumption of 6.2%. We maintain our Outperform rating on FCT.

Source: RHB Research - 23 Oct 2012