Frasers Centrepoint Trust - BUY: Resilient Suburban Malls

Strong 2QFY09 Results — FCT reported DPU of 1.86cents in 2QFY09, 6% higher yoy. Adding back the 5% retained this quarter and 1.67cents in 1Q, 1H09 DPU amounted to 3.63cents, about 49% of our and consensus full year estimates. The AEI on Northpoint should be completed in June-2009 and we expect greater contribution in 2HFY09. We believe full year results could outperform current consensus estimates.

Costs Down, NPI Up — Despite the 2% yoy fall in revenue, largely due to the AEI works at Northpoint, FCT still managed a 2% increase in NPI. This was due to an 11% decline in property expenses, largely attributed to lower maintenance fees and other property expenses e.g. advertising fees. Both Causeway Point (+10%) and Anchorpoint (+32%) recorded improvements in their NPIs and are fully-occupied as at March-2009.

Updates on Northpoint AEI — Some 94% of the enhanced Northpoint is either leased or under advance stage of negotiation, with full works expected to be completed by June-2009. Management expects full operation of the mall to start in July-2009 and should boost portfolio’s NPI by 7%.

Maintain Buy, TP $1.00 — We raise our revenue assumptions and lower property expenses but increase the cost of debt for the $80m of short-term debt from FY10 onwards. Our DPU increases by 11-13% for FY09-11E as a result and we raise our target price to $1.00 (from $0.94). Gearing is at 29.7% and interest cover at 4.55x. All acquisitions are delayed and we view there are no concerns on capital raising. We like FCT’s exposure to the resilient suburban malls sector and maintain our BUY (1L) rating.

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