Frasers Centrepoint Ltd - Yielding like a REIT
Growing developer with high dividend yields.
- We maintain our BUY rating on Frasers Centrepoint Ltd (FCL) for its attractive valuations at 0.7x P/NAV and FY17F PE of 11x, and offering one of the highest dividend yields among developers at c.5.7%.
- We continue to expect re-rating catalysts coming from potential asset monetisation from ongoing strategies to crystallise value across its portfolio.
FY16 core net profit fell 11% (in line) weighed down by weak earnings from development properties.
- FY16 net profit fell 23% y-o-y to S$597m, mainly due to lower core net profit and lower fair value gains.
- FY16 fair value gains was 34% lower at S$160m, mainly due to fair value losses in Singapore and Hospitality units offset by fair value gains in Australia (including S$77m fair value gain from the injection of properties into Frasers Logistics and Industrial Trust (FLT)).
- FY16 profit before interest and tax (PBIT) from development properties fell 29% while recurring income from investment properties dropped by 9% (partly due absence of one-off gains).
- Property sales were lower in FY16, falling 25% to 4.9k units. Management remains cautious and is selective in the residential sector, and continues to look for opportunities to strengthen its recurring income from commercial properties.
Asset recycling into its listed S-REITs.
- FCL will continue to demonstrate its ability to crystallise value by strategically divesting matured assets to its listed REITs. The group is thus able to free up capital, improve its balance sheet position and recycle capital to projects with higher returns.
- We maintain our BUY rating on FCL, TP maintained at S$2.00 (30% discount to RNAV).
Key Risks to Our View
- Dependent on the outlook of the Australian real estate market and currency. The group derives an estimated 30% of PBIT from Australia, and returns could be impacted by the weakening AUD/SGD exchange rate.