• U/G BUY from Neutral, keep SGD2.35 TP, 11% upside, 6% yield. 1QFY25 (Sep) saw stable operational performances (near-full occupancy and healthy rent reversions). Key highlights: Gradual decline in interest cost (-10bps QoQ) and better-than-expected overall tenant sales. Frasers Centrepoint Trust's suburban malls stand well positioned to benefit from limited supply, growing household income, and government support measures. Recent share price weakness is an attractive entry point (P/BV: 0.9x). Potential catalysts: Divestments/acquisition and asset enhancement initiative (AEI) uplifts.
• Market concerns over Causeway Point slightly overblown. We believe potential retail sales leakages from the upcoming Singapore-Johor Bahru Rapid Transit System or RTS link (end 2026) can be offset by a significant planned increase in catchment population in the area (c.10,000 new homes in the next five years), no new supply, increased cross-border traffic, and Woodlands' rising prominence as a regional centre, which results in more commercial activities in our view. FCT's strong and long track record of operating suburban malls and its sizeable mall network - with huge tenant pool and loyal shopper base - also allows it to effectively reposition some of the malls generic trade segments that could be more negatively impacted by cheaper cost alternatives available across the Causeway.
• Extracting value from AEI. AEI for Hougang will commence (2QCY25) with malls' NLA expected to increase by 11k sq ft. FCT plans to tweak the trade mix to increase the F&B proportion to 32% from 26% and revamp mall entrances and key shopper touchpoints. Half of additional space is already pre-committed and FCT is on track to achieve 7% ROI on an estimated SGD51m capex. Another AEI potential includes NEX mall, for which discussions are currently ongoing. This follows the recent successful completion of Tampines 1's AEI, which achieved an ROI of >8%.
• Portfolio occupancy remains stable at 99.5% (-0.2ppts QoQ). FCT guided that rental reversions remain healthy (1QFY25) and are tracking closer to FY24's 7.7%. This was supported by slightly better-than-expected tenant sales (+2.5% YoY) after growing <1% in the last two quarters. Financing costs have been coming down at 4% pa (from a 4.3% peak) and is expected to stabilise at these levels in FY25 with 66% of loans hedged.
• No earnings changes with FY25F DPU forecasted to return to growth mode. FCT's latest sustainability report (FY24) shows steady progress on greening efforts, with increases in renewable energy generation on-site, reduction in waste/water usage intensity, and rise in waste recycled. We maintain its high ESG score of 3.4 (out of 4.0), resulting in a 6% ESG premium. FCT also recently secured a buy-back mandate at its recent AGM.

Source: RHB Research - 23 Jan 2025