Frasers Centrepoint Ltd - CIMB Research 2016-08-08: Lacklustre quarter

FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - Lacklustre quarter

3Q/9M earnings below our estimates on lumpy residential contributions.
Singapore residential billings dip on project completions, next launch end-16/early- 17.
China and Australia residential to improve in 4Q on increased handovers.
Gearing improved to 0.7x post FLT listing.

In 3Q16, FCL’s revenue declined 33% to S$682m (US$505m) and EBIT fell 47% yoy to S$166.8m (US$123.5m) on lumpy China residential and smaller Singapore development profits due to a high base in 3Q15.
In Australia, a skewed residential completion profile and reduction in C&I rental income, on asset sales and Frasers Logistics Trust (FLT) spin-off, also dragged on performance. This was partly offset by higher rental and hospitality contributions.
9M16 net profit was below at c.43% of our full-year forecast.

Singapore residential contributed c.S$32m of EBIT in 3Q16 (vs. S$141m in pcp) with Twin Waterfalls EC), coming from progressive recognition and sales of ongoing projects.
Rivertrees Residences and North Park Residences are now 88.3%/69.5% taken up and should underpin the c.S$0.7m of unbilled revenue in Singapore. This will be augmented by the planned launch of its 800-900 unit Siglap project in end-16/early-17.
We reckon breakeven cost of c.S$1,350 psf vs. ASPs of S$1,500 psf.

Similarly, China residential EBIT came in at S$9m vs. S$38m previously on lumpy profit recognition and a one-time S$38m profit from sale of Crosspoint. An estimated 234 units were handed over with another 2,510 units to be handed over in 4Q. Hence, we expect this segment of operations to pick up towards year end.
UK residential contributions improved with the completion and hand over of the Riverside Quarter in 3Q.

In Australia, FPA reported a 30% dip in 3Q EBIT to S$29m with a small handover of 190 units (9M: 940 units) and lower C&I contributions, partly offset by maiden income from FLT. FCL expects to deliver 1,810 units in 4Q. So, we expect a rebound in income from this segment towards year end.
Including sales of 2,090 units in 9M16, FCL has unbilled revenue of S$2.1bn at end-3Q16.
FCL has largely monetised its industrial portfolio via sale to FLT and retains a 20.5% stake in the REIT.

Post listing of FLT, FCL’s gearing has improved to 0.7x with lower overall interest cost of 3.1%. This puts the group in a strong position to roll out its development activities in Singapore and Australia to build up a pipeline for potential future monetisation.
Apart from Northpoint City, it is also developing Frasers Tower as well as residential projects and 145,000 sq m of commercial and industrial properties in Australia. It would likely need to replenish its residential landbank in Singapore.

We lower our FY16-18 earnings to factor in lower contributions from Australia C&I post FLT listing. However, our RNAV is raised slightly to S$2.92 on gain from sale of assets to FLT.
We maintain our Add call with a slightly higher target price of S$2.04, pegged at 30% discount to RNAV.
Key catalyst would be reinvestment in new projects as well as increasing share free float. Risk is a slowdown in key markets, which would delay sales.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-08-08

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