• Focus to remain on Singapore
• Inorganic and organic growth drivers
• Still see value at current share price

Strong pipeline of acquisition targets in Singapore

Given that the Singapore Government has decided not to extend the stamp duty remission upon its expiry on 31 Mar this year, this would predominantly affect REITs with large exposure to Singapore, such as Frasers Centrepoint Trust (FCT). Nevertheless, we do not expect a significant impact on FCT’s growth prospects, as the stamp duty charges of ~3% on future acquisitions in Singapore remain manageable, in our view. While FCT may also step up its efforts to seek inorganic growth overseas, we believe Singapore will remain its core focus given its strong pipeline of potential acquisition targets here. In our view, interesting developments managed by its sponsor Frasers Centrepoint Limited (FCL) include Waterway Point and Northpoint City. The latter will comprise over 500 retail outlets spanning an estimated 850,000 sq ft if we also take into account the existing Northpoint Shopping Centre (owned by FCT). Although there could be some cannibalisation from the enlarged retail space upon completion, this would only take place in 2018. Moreover, we believe FCL will seek to find the optimal tenant mix and extract synergies from the integration with the existing mall.

Growth drivers for FY15

During 1QFY15, FCT managed to deliver a healthy YoY boost in its revenue and DPU by 18.3% and 10.0%, respectively. For the remainder of FY15, we expect growth to be driven by a full year of contribution from Changi City Point (CCP) and continued positive rental reversions, particularly from its larger malls such as Causeway Point and Northpoint. For CCP, we project its gross revenue to jump 251% to S$27.5m in FY15, as FY14 had only 3.5 months of contribution. Despite the soft retail sector outlook, we are still optimistic on FCT’s resilient and defensive portfolio of suburban malls.

Maintain BUY

FCT is currently trading at FY15F and FY16F P/B ratio of 1.08x and 1.07x, respectively. This is approximately half a standard deviation below its 5-year forward mean of 1.12x, which we believe reflects value in FCT’s current share price. Maintain BUY, with an unchanged fair value estimate of S$2.27.

Source: OCBC Research - 6 Mar 2015