Regional Morning Notes Monday , 25 January 2021

COMPANY UPDATE BUY Frasers Centrepoint Trust (FCT SP) (Maintained)

1QFY21: Defensive Yield From Necessity Consumption Share Price S$2.59 Target Price S$3.18 FCT’s business update for 1QFY21 demonstrated resiliency of its suburban malls. Upside +22.8% Portfolio occupancy edged higher by 1.5ppt qoq to 96.4% and rental reversions were flattish. Tenant sales have recovered to near pre-COVID-19 levels. FCT has divested (Previous TP S$3.15) and Anchorpoint in reconstitution to focus on larger suburban malls. The COMPANY DESCRIPTION potential acquisition of South Wing could be the next catalyst. BUY for FCT is one of the largest owners of suburban defensive distribution yield of 5.3% for FY21F. Target price: S$3.18. retail malls in with AUM of S$6.7b. WHAT’S NEW It has 11 retail malls and one office building. Its retail malls are located in populous • Suburban malls are more resilient. Frasers Centrepoint Trust’s (FCT) suburban malls are residential estates and close proximity to well located with connectivity to MRT stations and bus interchanges, close proximity to public transportation amenities, such as MRT dense population catchments and cater to essential services and non-discretionary stations and bus interchanges. spending. Portfolio occupancy edged higher by 1.5ppt qoq to 96.4% in 1QFY21. We saw STOCK DATA improvement in occupancies at Century Square (+2.6ppt), Northpoint City North Wing (+3.7ppt), 1 (+2.3ppt) and (+2.1ppt). Tenant sales have GICS sector Real Estate recovered to near pre-COVID-19 levels, accompanied by the usual seasonal pick-up during Bloomberg ticker: FCT SP the year-end festive period. Shares issued (m): 1,698.1 Market cap (S$m): 4,398.1 • Polarisation in performance of different trade sectors. FCT has renewed about one quarter of leases expiring in the current financial year during 1QFY21. Rental reversions Market cap (US$m): 3,316.8 were flattish. Trade sectors that performed well and provided positive rental reversions 3-mth avg daily t'over (US$m): 8.0 included essential services, such as supermarkets & grocers and beauty & healthcare. Price Performance (%) Jewellery & watches benefitted from Singaporeans shopping locally. Homeware & furnishing 52-week high/low S$3.03/S$1.64 and electrical & electronics benefited from employees working and spending more time at home. 1mth 3mth 6mth 1yr YTD 5.3 9.3 9.5 (7.3) 5.3 • On the contrary, fashion & accessories and food & beverage continued to face challenges Major Shareholders % and suffered negative rental reversion. For tenants facing difficulties, FCT could renew their leases on a short-term basis and re-negotiate leases with longer duration at a later date. Frasers Property Ltd 41.1

FCT has provided rental waiver of only S$0.2m in 1QFY21 for tenants in the leisure & FY21 NAV/Share (S$) 2.28 entertainment segment, where activities remain restricted. FY21 Net Debt/Share (S$) 1.16 • Engaging tenants early on lease renewal. Leases representing 28.3% of total NLA and 29.6% of gross rental income will expire during 2Q to 4Q of FY21. Century Square, PRICE CHART

Mall and Tampines 1 accounted for 51% of the leases expiring. Management is confident of SIAM COMM ERCIAL BANK PUB CO (lcy) (%) SIAM COMM ERCIAL BANK PUB CO/SE T INDE X renewing leases with anchor tenants providing essential services that have generally 110 110 performed well. Many tenants are already in advanced negotiations, although some tenants 100 100 with uncertain outlook may wait till the last minute. 90 90

KEY FINANCIALS 80 80 Year to 30 Sep (S$m) 2019 2020 2021F 2022F 2023F 70 70 Net turnover 196 164 385 390 390 EBITDA 121 90 235 239 239 60 60 Operating profit 121 90 235 238 239 50 50 80 Net profit (rep./act.) 206 152 232 221 221 60 Volum e (m ) Net profit (adj.) 114 148 218 221 221 40 20 EPU (S$ cent) 11.7 13.3 19.4 13.0 13.0 0 DPU (S$ cent) 12.3 9.1 13.7 13.8 13.8 Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 PE (x) 22.2 19.5 13.3 19.9 19.9 Source: Bloomberg P/B (x) 1.2 1.1 1.1 1.1 1.1 DPU Yld (%) 4.7 3.5 5.3 5.3 5.3 ANALYST(S) Net margin (%) 104.9 92.3 60.1 56.6 56.7 Net debt/(cash) to equity (%) 41.5 48.2 50.8 51.3 51.8 Jonathan Koh, CFA Interest cover (x) 4.9 3.3 5.5 5.4 5.4 +65 6590 6620 ROE (%) 9.4 6.1 7.2 5.7 5.7 [email protected]

Consensus DPU (S$ cent) n.a. n.a. 12.6 13.1 13.1 UOBKH/Consensus (x) - - 1.08 1.05 1.06 Source: Frasers Centrepoint Trust, Bloomberg, UOB Kay Hian

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Regional Morning Notes Monday , 25 January 2021

• Gearing well within regulatory limit. Aggregate leverage has increased from 35.9% to SHARE OF SUBURBAN RETAIL FLOORSPACE IN 37.7% after completing the acquisition of a 63.1% stake in AsiaRetail Fund (ARF) on 27 Oct SINGAPORE BY NLA 20. We estimate that aggregate leverage could decline to 36.6% if the proceeds from the divestment of Anchorpoint is fully utilised to repay borrowings. Average cost of borrowings has improved by 0.2ppt qoq to 2.2%. STOCK IMPACT • Phase 3 of re-opening commenced on 28 Dec 20. The size of social gatherings, including dining-in at restaurants, will increase from five to eight persons. The capacity limit for retail Source: FCT malls and large standalone stores will increase from 10sqm per person to 8sqm per person. ESSENTIAL SERVICES BY GROSS RENTAL INCOME The easing of safe distancing measures with Phase 3 re-opening would support further recovery of shopper traffic and tenant sales. • Focusing on larger and more dominant suburban malls. FCT has entered into a sale and purchase agreement for the proposed divestment of Anchorpoint Shopping Centre for a total consideration of S$110m. The independent appraised value of the suburban mall was also S$110m as at 15 Sep 20. The expected net proceeds from the divestment of S$108.8m will be used to repay borrowings. The divestment is expected to be completed by 22 Mar 21. • FCT continues to maintain a disciplined approach in portfolio reconstitution. Other properties to be potentially divested include YewTee Point (73,669sf) and Central Plaza (144,250sf). FCT is not actively soliciting offers. It will consider divesting YewTee Point and Central Plaza if it receives attractive and irresistible offers. • Supporting omni-channel retail strategies. The expanded scale post acquisition of ARF Source: FCT enables FCT to offer more value and options for retailers. FCT plans to harness the PORTFOLIO SHOPPER TRAFFIC enlarged scale to drive omni-channel retail strategies, positioning its suburban malls as fulfilment hubs for “last-mile” delivery and Click & Collect services in their immediate residential catchment. More retailers and F&B operators are moving to omni-channel retail as working from home becomes more prevalent. The more efficient use of retail space would create sticky relationships with tenants. EARNINGS REVISION/RISK • We tweaked our FY21F DPU forecast marginally higher by 1.6% to 13.7 S cents due to lower cost of borrowings.

VALUATION/RECOMMENDATION Source: FCT • Maintain BUY. Our target price of S$3.18 is based on DDM (required rate of return: 6.0%, PORTFOLIO TENANT SALES terminal growth: 1.8%). SHARE PRICE CATALYST • Gradual but steady recovery in shopper traffic and tenant sales, accompanied by progressive easing of social distancing measures. • Acquisition of remaining 60% stake in Waterway Point from sponsor Frasers Property. KEY OPERATING METRICS – FCT 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 yoy % Chg qoq % Chg DPU (S cents) 3.06 1.61 n.a. 4.37 n.a. n.a. n.a. Occupancy 97.3% 96.1% 94.6% 94.9% 96.4% -1ppt 1.5ppt Source: FCT Aggregate Leverage 33.2% 33.3% 35.0% 35.9% 37.7% 4.5ppt 1.8ppt Weighted All-in Financing Cost 2.6% 2.4% n.a. 2.4% 2.2% -0.4ppt -0.2ppt % Borrowing on Fixed Rates 53.0% 50.0% n.a. 54.3% 49.3% -3.7ppt -5.0ppt WALE by NLA (years) 1.77 1.83 1.69 1.55 1.54 -0.2yrs 0.0yrs Debt Maturity (years) 2.50 2.13 2.30 2.10 3.00 0.5yrs 0.9yrs Rental Reversions 5.0% 5.2% n.a. 4.2% n.a. n.a. n.a. Source: FCT, UOB Kay Hian

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Regional Morning Notes Monday , 25 January 2021

PROFIT & LOSS BALANCE SHEET Year to 30 Sep (S$m) 2020 2021F 2022F 2023F Year to 30 Sep (S$m) 2020 2021F 2022F 2023F Net turnover 164.4 385.3 389.5 390.2 Fixed assets 2,749.7 5,610.7 5,610.7 5,610.7 EBITDA 90.3 235.1 238.5 239.1 Other LT assets 987.4 356.5 356.5 356.5 Deprec. & amort. 0.1 0.1 0.1 0.1 Cash/ST investment 28.6 23.1 25.6 27.1 EBIT 90.2 235.0 238.4 239.0 Other current assets 117.7 8.4 8.5 8.6 Total other non-operating income (1.0) 0.0 0.0 0.0 Total assets 3,883.4 5,998.8 6,001.4 6,002.9

Associate contributions 86.5 25.5 26.0 26.4 ST debt 255.0 255.0 255.0 255.0 Net interest income/(expense) (27.6) (42.9) (43.9) (44.2) Other current liabilities 62.1 102.4 103.7 104.1 Pre-tax profit 151.8 231.7 220.5 221.2 LT debt 997.3 1,735.0 1,750.0 1,765.0 Tax (0.1) 0.0 0.0 0.0 Other LT liabilities 30.7 33.3 33.6 33.6 Net profit 151.7 231.7 220.5 221.2 Shareholders' equity 2,538.3 3,873.1 3,859.1 3,845.2 Net profit (adj.) 148.0 217.7 220.5 221.2 Total liabilities & equity 3,883.4 5,998.8 6,001.4 6,002.9

CASH FLOW KEY METRICS Year to 30 Sep (S$m) 2020 2021F 2022F 2023F Year to 30 Sep (%) 2020 2021F 2022F 2023F Operating 78.0 344.7 268.6 268.5 Profitability Pre-tax profit 65.4 192.2 194.5 194.8 EBITDA margin 54.9 61.0 61.2 61.3 Tax (0.1) 0.0 0.0 0.0 Pre-tax margin 92.3 60.1 56.6 56.7 Deprec. & amort. 0.1 0.1 0.1 0.1 Net margin 92.3 60.1 56.6 56.7 Associates 17.0 21.9 22.4 22.8 ROA 4.0 4.7 3.7 3.7 Working capital changes (14.4) 41.6 1.2 0.4 ROE 6.1 7.2 5.7 5.7 Non-cash items 4.8 9.5 9.5 9.5 Other operating cashflows 5.3 79.4 40.9 41.0 Growth Investing (163.8) (2,217.6) (1.5) (1.5) Turnover (16.3) 134.4 1.1 0.2 Capex (growth) 0.0 (2,434.1) 0.0 0.0 EBITDA (25.2) 160.5 1.4 0.2 Capex (maintenance) (10.9) (5.0) (5.0) (5.0) Pre-tax profit (26.3) 52.7 (4.8) 0.3 Investments (197.3) 0.0 0.0 0.0 Net profit (26.4) 52.8 (4.8) 0.3 Proceeds from sale of assets 0.0 218.0 0.0 0.0 Net profit (adj.) 30.2 47.1 1.3 0.3 Others 44.4 3.5 3.5 3.5 EPU 13.9 46.2 (33.1) 0.1 Financing 101.2 1,867.4 (264.5) (265.5) Distribution to unitholders (84.8) (232.8) (235.6) (236.3) Leverage Issue of shares 0.0 1,405.4 0.0 0.0 Debt to total capital 33.0 33.9 34.2 34.4 Proceeds from borrowings 793.0 737.7 15.0 15.0 Debt to equity 49.3 51.4 52.0 52.5 Loan repayment (580.1) 0.0 0.0 0.0 Net debt/(cash) to equity 48.2 50.8 51.3 51.8 Others/interest paid (27.0) (42.9) (43.9) (44.2) Interest cover (x) 3.3 5.5 5.4 5.4 Net cash inflow (outflow) 15.4 (5.5) 2.5 1.5 Beginning cash & cash equivalent 13.1 28.6 23.1 25.6 Ending cash & cash equivalent 28.5 23.1 25.6 27.1

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Regional Morning Notes Monday , 25 January 2021

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Regional Morning Notes Monday , 25 January 2021

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