Frasers Centrepoint Ltd - CIMB Research 2016-10-10: S$520m strategic Investment in TICON

FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - S$520m strategic Investment in TICON

TICON is listed on the SET and is a leading developer and owner of industrial properties in Thailand.
We view the deal positively as the industrial sector in Thailand should benefit from the roll out of mega infrastructure investment programmes.
Maintain Add with unchanged TP. The stock is trading at a 49% discount to RNAV.

FCL has entered into a conditional agreement with TICON to acquire a stake in TICON for THB13.23bn (S$520m) via a conditional share subscription of 735m new shares at THB18 per share. This price is at a 5.9% premium over the last closing price; and 11.2% and 13.6% higher than the 15-day and 30-day VWAP, respectively.
Post transaction, FCL will own a 40% stake in the enlarged capital of TICON.

TICON is listed on the SET and is a leading developer and owner of industrial properties in Thailand. It has built factories and warehouses in 18 industrial estates and 33 logistics locations in strategic hubs and economic clusters throughout the country. TICON has over 2.5m sqm of industrial space and is the sponsor of 3 listed property funds and one REIT in Thailand with a combined AUM of THB32.4bn.
As at 2QFY16, TICON had a book value and NTA of THB11.39bn (S$448m) and THB11.38bn (S$448m), respectively. Post transaction, its book value and NTA is set to increase to THB24.62bn (S$968m) and THB24.61bn (S$968m), respectively. Also, its debt-to-equity ratio is expected to decline to 0.34x.
The deal is subject to approval by the Securities and Exchange Commission Thailand, as well as from TICON’s shareholders at an EGM for an increase TICON's share capital, issue of new shares to FCL, and waiver from making a mandatory tender offer for all the shares of TICON.

From a strategic perspective, we view this deal as a positive, and one which could deliver medium-term benefits for FCL. The industrial sector in Thailand is set to benefit from the roll out of mega infrastructure investment programmes to improve efficiency and connectivity of rail, road and sea transportation networks within Thailand and the ASEAN corridors.
With this second transaction in Thailand, FCL will expand its exposure beyond the residential and commercial segments to the industrial segment, and make Thailand a key secondary market for the group. Although FCL's exposure to Thailand will increase, the country still makes up less than 3% of the group’s GAV.
With this platform and FCL's logistics and industrial expertise in Australia, we think the group will be well positioned to tap opportunities that could arise within the industrial properties segment in Thailand and the ASEAN Economic Community region.

Assuming FCL funds the transaction with debt, its gearing is expected to rise to 0.75x from 0.71x as at 3QFY16, still within its optimal target level.
We leave our earnings estimates unchanged, pending outstanding approvals and completion of the deal. After including the additional debt to fund the purchase, our RNAV for FCL remains at S$2.92.
We maintain Add on the stock with an unchanged TP (S$2.04), pegged at 30% discount to RNAV (stock is trading at a 49% discount to RNAV).

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-10-10

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