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

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.

1QFY17 results highlights 

  • 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.

China, the star performer in the international business segment 

  • 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 lifted by higher residential income, new launch in 2Q 

  • 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 earnings likely to pick up from 2Q onwards 

  • 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.

Maintain Add 

  • 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 | 2017-02-10
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.020 Same 2.020