Frasers Centrepoint Ltd - DBS Research 2016-08-10: Recycling platforms in place

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FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - Recycling platforms in place

• 9M16 core net profit fell 37% y-o-y to S$269m.
• Development properties' 9M16 core PBIT dropped 52% y-o-y; investment properties +1% y-o-y.
• 9M16 property sales of 3.8k units (9M15 4.7k).
• Maintain BUY, lower TP to S$1.90. 

Growing developer with high dividend yields. 

• We maintain our BUY rating for its attractive valuations at 0.7x P/NAV and FY17F PE of 11x, offering one of the highest dividend yields among developers at c.5.6%. 
• We continue to expect re-rating opportunities coming from potential asset monetisation from ongoing strategies to crystallise value across it portfolios.

9M16 marginally below expectations on lower development profits mitigated by fair value gain (FLT). 

• 9M16 net profit fell 27% y-o-y to S$376m, marginally below streets’ full-year estimates, mainly due to lower development profits mitigated by S$77m fair value gain from the injection of properties into FLT. 
• 9M16 core net profit (excluding fair value gains) fell 37% y-o-y to S$269m. 9M16 core PBIT from development properties halved to S$185m while recurring income from its investment properties recorded stable growth (+1%). 
• FCL recorded 3.8k units of property sales in 9M16 (-18% y-o-y).

Asset recycling into its listed S-REITs. 

• FCL will continue to demonstrate its ability to capitalise 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.

Valuation

• We maintain our BUY rating, but lower our target price to S$1.90 from S$2.05 (30% discount to RNAV) based on 9-27% lower FY16F-FY18F estimates due to the listing of FLT, revised the targeted timeline for the completion of its ongoing property developments and lowered FY16F EBIT margins by 4ppt to 35%.

Key Risks to Our View

• Dependent on the outlook of Australia's 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.

Rachel Lih Rui Tan DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-08-10

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.90 Down 2.050