HSI : 21,303
Price Target : 12-month HK$8.00
Growth on track
1H13 results were largely in line with expectations
Ongoing asset enhancement initiatives to propel growth
BUY with HK$8.00 TP
Encouraging growth led by healthy rental reversion and contributions from new malls. 1H13 distribution income grew 14% to HK$307m, led by higher rental revenue, partly offset by an increase in interest expenses. Thanks to positive rental reversion of 18.2% and full-period contribution from Belvedere Square and Provident Square acquired in Feb 12, total revenue was 13% higher at HK$609m. Completed AEI projects such as
Fortune City One also contributed to revenue growth. Portfolio occupancy edged down marginally to 97.8% in Jun 13 from Mar 13’s 98.6% as upgrading works at Fortune City One’s wet market commenced. With slight improvement of cost-to-income ratio to 26% in 1H13 from 1H12’s 26.7%, net property income was up 15% to HK$438m. Interest expenses were 9% higher at HK$67m due to additional borrowings raised to fund Feb 12’s acquisitions.
Ongoing asset enhancement initiatives to propel growth. The HK$15m AEI at Jubilee Square was recently completed and achieved ROI exceeding 25%. In 2Q13, the re-layout exercise at Smartland commenced, involving 5,000sf on the ground floor. Upgrading of the wet market portion at Fortune City One has also started in an attempt to improve its occupancy. Fortune REIT has earmarked capex of HK$18m on this renovation with completion targeted for end 2013. In 3Q13, Fortune REIT will reconfigure c.59,000sf of space occupied by an anchor tenant (a supermarket) at Ma On Shan Plaza. This should create more shops to accommodate higher paying retail and F&B trades. Subject to government approval, the HK$80m AEI at Belvedere Square Ph 3 in Tsuen Wan is scheduled to commence in 4Q13. We believe ongoing asset enhancement work could continue to unlock the values of its underlying properties.
BUY with HK$8.00 TP. With a comfortable gearing position of 20.9% in Jun 13, Fortune REIT has debt headroom of HK$5bn for making acquisition before hitting the gearing limit of 35%. Following the stock’s recent sell-off led by concerns over interest rate hikes, Fortune REIT currently offers distribution yields of 5-5.3% in FY13-14. In view of its earnings resilience and steady growth profile, we believe Fortune REIT offers good long-term value. We maintain BUY with DDM-based TP of HK$8.00.
Source/Extract/Excerpts/来源/转贴/摘录: DBS Vickers Research
Publish date: 17/07/13