First Sponsor Group - RHB Invest 2016-08-23: Tied up with China Vanke to co-develop its mixed-use project

FIRST SPONSOR GROUP LIMITED ADN.SI

First Sponsor Group - Tied up with China Vanke to co-develop its mixed-use project

First Sponsor Group (FSG SP) has tied up with China Vanke to co-develop its mixed-use project in Dongguan city, Guangzhou province.
The group will sell a 70% stake in its Star of East River site to two investors, Vanke China (55%) and Regent Land (15%), generating estimated net proceeds of ~S$243.4 million and net gain of S$95.3 million. The transaction is expected to be completed in October 2016. This deal is highly accretive to FSG and will lift its NAV/share by 9.3% to S$1.81 on a pro-forma basis.

Besides an upfront monetisation and the ability to leverage of the strong branding of Vanke in China to market the project, First Sponsor can continue to participate in the potential upside of the project through its 30% stake. The group intends to re-deploy proceeds into its three core businesses of property development, property investment and property financing.
First Sponsor Group (FSG SP) is also seeing stronger sales from its other mixed development project in Chengdu, the Millennium Waterfront, which registered 332 residential unit sales in 2Q16, almost double the level in 1Q16. We estimate the group has some RMB800-900m of presales from the project which, combined with continuing sales, will underpin future quarters’ earnings.
On the property investment front, the property acquisitions in the Netherlands last year has given rise to a steady stream of recurring rental income amounting to some S$26m per annum.
FSG has also obtained favourable judgements from the Shanghai court for two of its property loans that defaulted earlier this year. Interest is compounding at 24-30% per annum on these loans and due to low loan-to-value ratios, the group is confident of recovering its principal and reap a good return on its investments.
We remain confident of the group’s prospects and maintain our BUY rating on the stock with a TP of SGD1.55.

Goh Han Peng RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-23

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.55 Same 1.550