Frasers Property Limited - CGS-CIMB 2018-05-10: Higher Recurring Income Base

Frasers Property Limited - CGS-CIMB 2018-05-10: Higher Recurring Income Base FRASERS PROPERTY LIMITED SGX: TQ5

Frasers Property Limited - Higher Recurring Income Base

  • Frasers Property Limited's 1HFY9/18 earnings were a little below our estimates, at 33.8% of our FY18 forecast.
  • Better Singapore, Australia, Europe and rest of Asia performance offset lower hospitality contributions.
  • Frasers Property Limited has S$3.1bn of unbilled residential sales across Singapore, Australia and China.
  • Maintain ADD with unchanged Target Price of S$2.40.

2QFY9/18 results highlights

  • Frasers Property Limited (FPL) reported 2QFY18 revenue of S$841.7m, +19% y-o-y, while core net profit rose 74.5% y-o-y to S$124.2m, thanks to improvement in Singapore, Australia and Europe/rest of Asia operations, partly offset by a dip in hospitality business. 
  • For 1H, core net profit showed a 23.6% decline to S$193.4m, thanks to a high base in the previous year from lumpy overseas development profits. 
  • 1H recurrent income formed 71% of PBIT. The group proposed an interim DPS of 2.4 Scts.

Singapore boosted by higher residential and rentals

  • Singapore 2Q PBIT rose 17% y-o-y thanks to greater residential and rental contributions, partly offset by lower REIT income. Parc Life EC (90% sold) was completed in 2QFY18 and there were progressive sales and billings from North Park Residences and Seaside Residences (70% sold). It had a balance of S$0.9bn of unrecognised residential revenue as at 2Q18. 
  • Planning of the Jiak Kim St site (about 500 units) is underway and slated for launch in 1H19. 
  • Frasers Tower is over 70% pre-committed ahead of completion in 1H18.

Australia saw improvement across all operations

  • 2Q Australia PBIT jumped 60% y-o-y to S$88m thanks to higher residential, commercial & industrial and REIT contributions. 624 homes were handed over in 2Q and unrecognised residential revenue was S$1.9bn as at end-2Q. Another 1,656 units are planned to be settled for 2HFY18. 
  • In the commercial and industrial segment, it has a further 14 facilities to be delivered over the next 15 months, with an estimated GDV of S$460m. 
  • Office portfolio remains well occupied at 97.4%.

Hospitality dragged by lower UK hotel contributions

  • The hospitality division saw a 30% decline in PBIT in 2Q, largely affected by lower F&B revenue at the Malmaison Hotel du Vin properties in the UK as well as pre-opening expenses from the Frasers Suites Dalian
  • Fee income was also lower in 2Q.

Europe and rest of Asia lifted by profits from Geneba and UK

  • 2Q PBIT from Europe/rest of Asia surged to S$93.6m thanks to inclusion of income from Geneba Properties and contributions from business parks in the UK. 
  • There was also settlement of 130 units from P3 Baitang One and P4 Chengdu Logistics Hub while Thailand and Vietnam saw higher income from Golden Land and TICON
  • Frasers Property Limited had recently announced the proposed divestment of 21 logistics facilities in Germany and Netherlands to Frasers Logistics & Industrial Trust (FLT) for an aggregate consideration of €316.2m.

Maintain ADD

  • We tweak our FY18-20F earnings to factor in the divestment of 21 logistics properties to Frasers Logistics & Industrial Trust (FLT). We maintain our ADD rating and Target Price of S$2.40. 
  • We continue to like Frasers Property Limited’s strong recurring income base which makes up 71% of operating PBIT. 
  • Upside catalysts include capital recycling to lower its current net debt-to-equity ratio of 95.3% while downside risks include forex volatility given 70% of its PBIT is derived outside of Singapore.

LOCK Mun Yee CGS-CIMB | 2018-05-10
SGX Stock Analyst Report ADD Maintain ADD 2.400 Same 2.400