Frasers Centrepoint Ltd - 1Q boost from China residential
- 1QFY17 net profit was broadly in line, making up 35% of our FY17 estimate.
- China delivered strong residential billings in 1Q, forward momentum likely to be more back-end loaded with new completions expected in 4Q.
- Planned launch of Seaside Residences in 2Q further extends Singapore’s residential earnings visibility.
- Slow 1Q for Australia, we expect momentum to pick up with a higher proportion of completions and billing for the remainder of FY17.
- Maintain Add with an unchanged target price of S$2.02.
1QFY17 results highlights
- FCL reported a 45% yoy rise in 1QFY17 revenue to S$971.7m while net profit more than doubled to S$182m.
- Net profit was broadly in line, accounting for 35% of our FY17 forecast. The better performance was underpinned by the Singapore and China residential and hospitality businesses.
China, the star performer in the international business segment
- International business, which includes China residential, saw a jump to S$137.7m. The bulk (S$126m) came from profit recognition of Phase 3C1 Baiting One in Suzhou. There was also a S$4m contribution from associate Golden Land.
- Going forward, we expect earnings from the international business to be back-end loaded, with completions from China residential to pick up pace only in 4Q.
- There is a remaining S$0.2bn of unrecognised billings from China residential activities as at 1QFY17.
Singapore lifted by higher residential income, new launch in 2Q
- Singapore PBIT grew 5.4% to S$105.9m, lifted by higher residential and fee income. It recognised maiden profits from North Park Residences (76.4% sold) as well as the sale of one bungalow at Holland Park. There is a remaining S$0.7bn of unrecognised billings from Singapore projects.
- FCL also plans to launch Seaside Residences in 2Q. Selling prices in the vicinity range from S$1,400-1,700psf vs. our estimated breakeven of S$1,370psf. With low land inventory, we expect FCL to replenish its land holdings.
Australia earnings likely to pick up from 2Q onwards
- Australia’s PBIT fell 33% yoy to S$39.3m due to lower volume of residential completions and billings (300 units), as well as reduced rental income from C&I following the listing of Frasers Logistics Trust and divestment of assets last year. That said, we expect residential recognition to pick up, with a further 2,700 homes to be completed in the rest of FY17.
- There is a balance of S$2.3bn of unrecognised residential billings as at 1QFY17.
- We leave our EPS unchanged and maintain our RNAV of S$2.88.
- Our TP of S$2.02 is based on a 30% discount to RNAV.
- FCL is currently trading at a 42% discount to RNAV and offers potential dividend yield of 5.2%, one of the highest among listed developers.
- With strong earnings visibility and robust balance sheet and gearing of 65%, we see any reinvestment of capital into new projects as a catalyst.
- Key risk includes a slowdown in its core markets of Singapore and Australia, which would delay residential sales.