Frasers Centrepoint Ltd - CIMB Research 2016-11-09: Dragged by reduced residential and impairments

Frasers Centrepoint Ltd - CIMB Research 2016-11-09: Dragged by reduced residential and impairments FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - Dragged by reduced residential and impairments

  • FY16 net profit was below our and market expectations, at 75% of our forecast.
  • Slowdown in Singapore residential contributions and impairments in Australia were a drag on performance.
  • Gearing lower at 64.4% after listing on FLT, strengthen balance sheet for more capital reinvestment.
  • Maintain Add with a slightly lower RNAV-based TP of S$2.02.

FY16 results highlights 

  • FCL’s FY16 net profit was down 23% yoy to S$597.2m, while revenue dipped a smaller 3.4%. 
  • Earnings came in below our and market expectations, dragged by a S$47m impairment of residential inventory in Australia, as well as slower development profits from Singapore and international SBUs and lower fair value gains. Excluding one-offs, the bottomline would have been S$479.9m, -12% yoy. 
  • The group proposed a final DPS of 6.2 Scts, bringing FY16 total DPS of 8.6 Scts or a 5.8% yield.

Project completions a drag on Singapore earnings 

  • Singapore PBIT fell 25% yoy to S$428m, impacted by lower residential development profits on completion of ongoing projects and absence of fair value gains in FY16. This was partly offset by higher income from its REITs. 
  • Looking ahead, there is a remaining S$0.7bn of yet-to-be recognised residential pre-sales, as well as sales from Parc Life EC and North Park Residences
  • In addition, the group plans to launch its Siglap Rd site (800-900 units) in 1QCY17. This should extend earnings visibility.

Taking impairment on residential projects 

  • Australia PBIT dipped 19% yoy to S$218m due to a S$47m impairment of residential inventory, largely in Western Australia as well as lower C&I contributions following the spin-off of Frasers Logistics Trust (FLT), partly offset by maiden income from the trust.
  • There is S$1.9bn of unbilled residential revenue in Australia. This is likely to be partly recognised when an est. 3,000 units are handed over in FY17. FCL plans to market another 2,500 residences in FY17 and this should continue to drive residential earnings.

Gearing has improved to 64.4% 

  • Following the listing of FLT, FCL’s gearing has improved to 64.4%. Even after taking into account the recent acquisition of a stake in TICON, gearing should remain below its optimal guidance of 0.8x. 
  • Cost of debt is low at 3.1%, and 86% of loans are on fixed rate terms. This puts the group in a strong position to roll out its development activities in Singapore (Frasers Tower and Northpoint City), build up its landbank in Australia, and explore new opportunities in emerging markets.

Maintain Add 

  • We cut our FY17-18F EPS by 4.6-12.6% to take into account the latest results. We also introduce FY19F projections. Hence, our RNAV and TP is trimmed slightly to S$2.88 and S$2.02. FCL is trading at a 48% discount to RNAV. 
  • We maintain our Add call on the expectation that the group would reinvest its capital into accretive new projects.
  • Meanwhile earnings visibility remains strong with S$3.1bn of unrecognised revenue and high dividend yield of 5.8%. 
  • Risk is a slowdown in key markets, which would delay sales.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | 2016-11-09
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.02 Down 2.040