Frasers Centrepoint Ltd - CIMB Research 2017-11-13: Building Recurrent Income

FRASERS CENTREPOINT LIMITED TQ5.SI

Frasers Centrepoint Ltd - Building Recurrent Income

Frasers Centrepoint Ltd (FCL) reported 4QFY17 revenue of S$950.6m and net profit of S$263m.
For the full year, the topline rose 17.1% yoy to S$4,026.6m while net profit jumped 15.4% yoy to S$689.1m. Excluding revaluation gains and exceptional items, core net profit was S$488.2m, 87% of our FY17 forecast, mainly dragged by larger-than-projected minorities.
FCL proposed a final DPS of 6.2 Scts, bringing FY17 DPS to 8.6 Scts or 4.1% yield.

As expected, Singapore FY17 PBIT fell 4.7% yoy to S$408.2m due to the absence of lumpy contributions from Twin Fountains EC (recognised in FY16). This was partly mitigated by profit contribution from North Park Residences and the sale of a bungalow at Holland Park.
The launch of the 40%-owned Seaside Residences earlier this year garnered a c.60% take-up rate. Going into FY18F, the completions of Parc Life EC and North Park Residences are likely to underpin residential earnings.

Australia FY17 PBIT saw a 33.2% yoy improvement to S$290.2m due to the sale of a student accommodation at Central Park and higher settlements of 2,450 units. It sold 2,234 units in FY17.
For FY18F, it plans to hand over 3,000 units and release for sale a further 2,000 units. It had c.S$2.2bn worth of unbilled locked-in sales as at end-4QFY17.

International division contributions jumped 47.6% yoy to S$274.1m, thanks to settlements of residential projects in China and UK.
In addition, associated Golden Land and TICON delivered better results. With its landbank in China and UK fairly well developed, we expect contributions from these countries to moderate going forward.
Meanwhile, the hospitality division reported a 14.2% yoy higher PBIT due to contributions from Novotel Melbourne on Collins and Maritim Hotel Dresden.

We expect recurrent income to rise with the opening of Northpoint City South Wing in Dec 17, which is currently 90% pre-leased. The construction of Frasers Tower is ongoing and is expected to complete in 1H18. These two properties could add c.1m sq ft of NLA to the group’s investment property portfolio.
As these properties stabilise, we believe there could be opportunity to recycle from these assets in the medium term, further unlocking balance sheet capacity. The end-FY17 net debt-to-equity ratio was 70.6%.

The group had also acquired 4 business park properties in UK for an aggregate consideration of £686m. This maiden venture into the UK business parks segment is in tandem with the group’s strategy to boost its recurrent income sources. The purchase, completed in Nov 17, will likely boost the group’s net debt-to-equity ratio.

We cut our FY18-19F earnings estimates by 15-20% as we align the Australian residential project completions with the latest company releases. At the same time, we lift our RNAV estimate for FCL to S$3.39 as we roll forward our projections.
Our RNAV-based target price is S$2.37, based on a 30% discount to RNAV.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-11-13

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