Frasers Centrepoint Ltd - CIMB Research 2017-02-10: 1Q boost from China residential

FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - 1Q boost from China residential

1QFY17 net profit was broadly in line, making up 35% of our FY17 estimate.
China delivered strong residential billings in 1Q, forward momentum likely to be more back-end loaded with new completions expected in 4Q.
Planned launch of Seaside Residences in 2Q further extends Singapore’s residential earnings visibility.

Slow 1Q for Australia, we expect momentum to pick up with a higher proportion of completions and billing for the remainder of FY17.
Maintain Add with an unchanged target price of S$2.02.

FCL reported a 45% yoy rise in 1QFY17 revenue to S$971.7m while net profit more than doubled to S$182m.
Net profit was broadly in line, accounting for 35% of our FY17 forecast. The better performance was underpinned by the Singapore and China residential and hospitality businesses.

International business, which includes China residential, saw a jump to S$137.7m. The bulk (S$126m) came from profit recognition of Phase 3C1 Baiting One in Suzhou. There was also a S$4m contribution from associate Golden Land.
Going forward, we expect earnings from the international business to be back-end loaded, with completions from China residential to pick up pace only in 4Q.
There is a remaining S$0.2bn of unrecognised billings from China residential activities as at 1QFY17.

Singapore PBIT grew 5.4% to S$105.9m, lifted by higher residential and fee income. It recognised maiden profits from North Park Residences (76.4% sold) as well as the sale of one bungalow at Holland Park. There is a remaining S$0.7bn of unrecognised billings from Singapore projects.
FCL also plans to launch Seaside Residences in 2Q. Selling prices in the vicinity range from S$1,400-1,700psf vs. our estimated breakeven of S$1,370psf. With low land inventory, we expect FCL to replenish its land holdings.

Australia’s PBIT fell 33% yoy to S$39.3m due to lower volume of residential completions and billings (300 units), as well as reduced rental income from C&I following the listing of Frasers Logistics Trust and divestment of assets last year. That said, we expect residential recognition to pick up, with a further 2,700 homes to be completed in the rest of FY17.
There is a balance of S$2.3bn of unrecognised residential billings as at 1QFY17.

We leave our EPS unchanged and maintain our RNAV of S$2.88.
Our TP of S$2.02 is based on a 30% discount to RNAV.
FCL is currently trading at a 42% discount to RNAV and offers potential dividend yield of 5.2%, one of the highest among listed developers.
With strong earnings visibility and robust balance sheet and gearing of 65%, we see any reinvestment of capital into new projects as a catalyst.
Key risk includes a slowdown in its core markets of Singapore and Australia, which would delay residential sales.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-02-10

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.020 Same 2.020