• Frasers Centrepoint Trust is currently the second largest Singapore sub-urban retail space operator with 10.2% share of total sub-urban retail space. Despite headwinds faced by the retail sector, we believe Frasers Centrepoint Trust’s strategically located and diversified sub-urban mall portfolio is better positioned to weather the challenges.
• Valuations however are not compelling in our view with stock trading at 1.1x P/BV and offering ~5% FY21 (Oct 2020 to Sep 2021) yield.
• Stay NEUTRAL with unchanged target price of S$2.40, 2% downside.

Tenant Sales Have Recovered Close to Pre-COVID Levels But Recovery Is Uneven Across Sectors

• Overall tenant sales in October across Frasers Centrepoint Trust (SGX:J69U)'s malls are down just 1.8% y-o-y outperforming the overall retail sales in Singapore down 8.6% y-o-y. With Singapore moving into Phase 3 from 28-Dec, the capacity limit for malls and large standalone stores will be increased from 10 sq m per person to 8 sq m per person. This, coupled with the shopping during the festive season, should boost near-term sales.
• However, the recovery in retail sales has been uneven across trade sectors with supermarkets, sporting goods, certain food & beverage and wellness sectors faring much better than the rest. This uneven recovery, in our view, is likely to pose challenges for landlords in terms of curating malls tenant mix, resulting in higher vacancies and lower rents.
• We expect overall occupancy in low 90% for FY21 from 94.9% as at the end of September, with flattish rent reversions.

Embracing the Omnichannel as the Key for Future

• Online sales as a percent of total (excluding motor vehicles) for October currently stand at 12.6% ie nearly double that of pre-COVID level. We expect the trend of higher online sales to continue post-COVID as more tenants embrace an omnichannel retail strategy with customers enjoying an increased convenience.
• To adapt to changing trends, Frasers Centrepoint Trust revamped its Frasers e-store and Makan Master app where customers can aggregate up to three orders in one delivery and offer a seamless door to store retail and dining experience. The app currently has > 800,000 members and we believe focusing on this strategy can help Frasers Centrepoint Trust gain better insights into customers changing retail patterns and better curate its tenant mix in the future.

FY21 DPU to Rebound From Acquisition Contribution and Absence of Rent Rebates

• We forecast a 40% jump in Frasers Centrepoint Trust's FY21F DPU mainly driven by the absence of ~2 months of rent rebates granted in FY20, accretion from acquisition of PGIM Asia Retail Fund (ARF) malls and lower borrowing costs. Frasers Centrepoint Trust is expected to still provide targeted rent relief for tenants in FY21 at S$1-3m.
• Gearing post acquisition and divestment of Bedok Point stands at 39.3%.
• Looking ahead in FY21, we expect Frasers Centrepoint Trust to focus mainly on operational improvements and reaping synergies from the PGIM ARF portfolio. Mid-term acquisition opportunities include the remaining stake in Waterway Point and North Point City South Wing.

Source: RHB Invest Research - 18 Dec 2020