Frasers Centrepoint Ltd - CIMB Research 2015-12-09: Revving all engines

FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - Revving all engines

Strong development income visibility with S$3.1bn of unbilled revenue.
Office and retail developments underway to provide room for medium-term rental income expansion.
Hospitality portfolio expected to rise significantly by 2019.
Foray into Thailand through a strategic stake in Golden Land.
Maintain Add with target price of S$2.04.

Development earnings visibility is strong with total unrecognised revenue of S$3.1bn, largely from Singapore (S$1.2bn), where North Park Residences is 66% sold.
In addition, FPA will launch a further 3,850 units in FY16 and this will augment the S$1.5bn unbilled revenue in Australia.
While landbanking in Singapore is challenging, FPA increased its landbank in Australia by another 2,833 units in FY15 to reach a total development pipeline GDV of S$8.5bn.

Recurrent income makes up 58% of FCL’s PBIT, in line with its target of 60-70%. This segment will be underpinned by strong rental income from FPA’s C&I portfolio as well as the opening of Waterway Point, a suburban mall in Singapore.
In the medium term, the completion of Frasers Tower, Northpoint City and AEI works at Centrepoint should boost rental income significantly.

On top of the acquisition of the Malmaison and Hotel du Vin portfolio of hotels in the UK for £364m (S$760m), the hospitality division should also see the total number of keys under management growing from the present 14,083 units to at least 22,783 keys by 2019. This should underpin hotel and management income, and also form a potential acquisition pipeline for its hospitality REIT.

FCL’s recent foray into Thailand is through a strategic investment in Thai-listed Golden Land Property Development.
The group will purchase a 29.5% stake in the enlarged entity for THB4,971m (S$196m). Golden Land focuses on landed and medium-density housing, and mixed-use commercial and hospitality projects in the Bangkok CBD.

We maintain our Add rating on FCL with an unchanged target price of S$2.04, premised on a 30% discount to RNAV.
While its gearing of 83.6% is higher than its peers, we believe that potential capital management efforts such as asset sales to its existing REITs will enable it to recycle capital going forward.
Other share price catalysts could emerge should the group increase its free float.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2015-12-09

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