Frasers Centrepoint Ltd - DBS Research 2017-04-07: Timely home run

SGinvestors.io

FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - Timely home run

• Seaside Residences poised to benefit from post-government relaxation fever.
• Frasers Tower – well-timed completion in 2018 with no major competitive supply.
• Waterway Point ripe for asset recycling soon.

Growing developer with high dividend yields. 

• We maintain our BUY rating on Frasers Centrepoint Ltd (FCL) for its attractive valuations at 0.7x P/NAV and 12x FY17F PE, and offering one of the highest dividend yields among developers at c.5%. 
• While most developers have re-rated to an average of 0.9x P/NAV following the government’s recent tweaking of property measures, FCL has lagged behind, implying that the market has broadly overlooked the potential of its upcoming Singapore projects.

Where we defer. 

• Upcoming Singapore projects yet to be fully priced in at current price. Following an uptick in the sentiment in the Singapore residential market post government policy relaxation and upgrades to GDP forecasts, we believe that FCL’s latest residential project - Seaside Residences, which is launching soon, will garner good buyer interest. 
• In addition, Frasers Tower, which is the only major building completing in the Central Business District (CBD) in 2018, should do well in the midst of a drop off in competitive supply that year. 
• With this two well-timed projects entering the market, we see re-rating catalysts for the stock. Historically, we have seen that strong property sales translate to higher prices for FCL.

Potential catalyst: Improved property sales and asset monetisation.

• Asset recycling into its listed S-REITs. FCL will continue to demonstrate its ability to crystallise value by strategically divesting matured assets to its listed REITs. 
• Potential assets include Waterway Point and Northpoint City.

Valuation

• We maintain our BUY rating and target price at S$2.00 (30% discount to RNAV) from rolling forward our earnings estimates.

Key Risks to Our View

• Dependent on the outlook of the Australian 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 TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-04-07

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.000 Same 2.000