Frasers Property Limited - DBS Research 2018-07-06: Saved By Dividend Yield

Frasers Property Limited - DBS Vickers 2018-07-06: Saved By Dividend Yield FRASERS PROPERTY LIMITED SGX: TQ5

Frasers Property Limited - Saved By Dividend Yield

  • The authorities surprised the market with a hike in ABSD and tightening of mortgages, just over a year after it relaxed policy.
  • Buyers’ sentiment will be impacted.
  • Despite tightening measures, Frasers Property Limited (FPL) is a good defensive play with low exposure to Singapore property and offers high dividend yield of c.5%.
  • Maintain BUY rating; lower Target Price to S$1.90.



Growing developer with high dividend yield.

  • We maintain our BUY rating on Frasers Property Ltd (FPL) despite the government implementing tighter measures on the property sector as its valuation remains attractive at 0.6x P/NAV and Frasers Property Ltd's dividend yield remains the highest among developers at c.5%. 
  • However, we lowered our Target Price to S$1.90 (from S$2.35) on a higher discount to RNAV of 35% from 20% previously on heightened uncertainty.


Where we differ: Defensive play with low exposure to Singapore property and high dividend yield.

  • We believe Frasers Property Limited (FPL) is a good defensive play within the sector as FPL has low exposure to Singapore’s residential property market (~5%; Jiak Kim land site. io.).
  • In addition, with the recent de-rating in share price, FPL currently offers a dividend yield of over 5%, the highest among the developers and comparable to the REITs. 


Potential catalyst: Improved property sales, asset monetization, and improving free float and liquidity.

  • Stable recurring income. Frasers Property Limited (FPL)’s recurring income portfolio should remain stable with Frasers’ Tower achieving over 70% commitment, Northpoint mall is now fully opened and potential asset recycling of stable investment properties into its REITs such as Waterway Point mall.


Valuation: 

  • We maintain our BUY rating but lowered our target price to S$1.90 from S$2.35, implying a 0.7x P/NAV on higher discount to RNAV to 35% from 20% previously. 
  • We have not incorporated newly acquired Geneba into our Target Price.


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.


CRITICAL DATA POINTS TO WATCH


Growing recurring revenues from its commercial and hospitality divisions.

  • Frasers Property Limited (FPL) is one of the largest property developers in Singapore with an asset base of over S$27bn as at end-FY17. The group aims to grow recurring revenues to 60-70% of PBIT in the medium term.
  • The group’s commercial portfolio will see incremental income from the completions of Waterway Point (completed in January 2016), Northpoint City (retail) and Frasers Towers (commercial) from 2018 onwards, which will boost its earnings further while The Centrepoint mall’s asset enhancement initiative (AEI) was completed in September 2016. 
  • Frasers Hospitality is also expected to expand its footprint to 30,000 managed units by 2019. In addition, the acquisition of the Malmaison Hotel du vin Group (MHDV), which has a portfolio of 29 boutique lifestyle hotels and 2,082 keys within 25 regional cities in the UK, will further deepen its presence and clientele reach. io. We see cross-selling opportunities and synergies between MHDV and the Frasers brand, propelling the division’s performance to greater heights.

New launches across its portfolio; more than 20m sqft of development space to be realised.

  • The group currently has more than 20m sqft of development space to be progressively realised, largely in Australian industrial properties. The group continues to replenish its land bank with recent purchases mostly in Australia (residential and industrial). 
  • Unrecognised revenues from its property division, including Frasers Property Australia total about S$3bn.

Sustainable high dividend.

  • Frasers Property Limited (FPL) has one of the highest ROEs among property developers (c.6-11% over FY14A-17A) and dividend yield of over 5% vs industry average ROE of close to 6% and dividend yield of c.2-3%. This is mainly due to the group’s efficient operating model of quick asset turns for its residential development projects and its focus on a portfolio of recurring commercial properties (hotels, retail and office) which boosts returns.

Golden Land acquisition to bear fruit in the medium term.

  • The group currently owns close to a 40% stake in Golden Land Property Development PCL (GOLD) and management believes that this acquisition offers good synergies to FPL as both companies share similar investment philosophies with an aim to continue growing its recurring income base. GOLD also offers FPL the ability to tap into the growing real estate market in Thailand, supported by favourable market fundamentals.


Balance Sheet:


Balance sheet remains strong.

  • Debt/equity ratio is expected to remain fairly stable at between 0.7-0.9x over FY17A-19F which is within management's comfortable range. Debt maturity profile remains long at approximately three years with an average cost of debt of c.3%. 
  • Fixed rate percentage of its loans remains high at 67%.


Share Price Drivers:


Replenishing land bank key to income sustainability.

  • Frasers Property Limited (FPL) currently has more than 20m sqft of development space, mainly in Australia. It is actively looking to replenish its land bank especially in Singapore but remains selective, given the sustained high land prices seen in recent government land tenders. 
  • The ability to secure additional land bank at lower prices will mean upside to RNAVs, which could re-rate the stock.

Stable recurring income.

  • Frasers Property Limited (FPL)’s recurring income portfolio should remain stable with Frasers’ Tower achieving over 70% commitment, Northpoint mall is now fully opened and potential asset recycling of stable investment properties into its REITs such as Waterway Point mall.

Gains from asset recycling into its listed S-REITs to boost share price.

  • Recycling activities are perceived positively by investors as FPL is able to free up capital by selling its matured assets to its listed REITs, which will improve the group’s balance sheet position and recycle capital to projects with higher returns.


Key Risks:


Small free float.

  • The stock has a low free float with 87.9% held by major shareholders TCC Group and Thai Beverage, thus leading to low liquidity.

Dependent on the outlook of Australia's real estate market, currency outlook.

  • The group derives an estimated 30% of PBIT from Australia which is dependent on the real estate market there, and whose returns could be impacted by the weakening AUD/SGD exchange rate.







Mervin SONG CFA DBS Vickers | Derek TAN DBS Vickers | https://www.dbsvickers.com/ 2018-07-06
SGX Stock Analyst Report BUY Maintain BUY 1.90 Down 2.350



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