Frasers Property Limited - CGS-CIMB Research 2019-08-13: Mixed Performance


Frasers Property Limited - Mixed Performance

  • Frasers Property's 9MFY9/19 core EPS was broadly in line, at 71% of our FY19 forecast.
  • Slower residential activities in Singapore and China partly offset by higher rental income. Higher residential handover in Australia scheduled for 4Q.
  • Maintain ADD, with unchanged Target Price of S$2.08.

3QFY9/19 results highlights

  • Frasers Property Limited (SGX:TQ5) reported 3QFY9/19 revenue of S$638.8m (-10% y-o-y) while reported PATMI came in at S$333.9m (+68.2% y-o-y), with the inclusion of revaluation gains largely from Frasers Tower. Excluding this, operating PATMI would have been S$74m (-55.8% y-o-y), dragged down by lower Singapore, hospitality and Europe and rest of Asia strategic business units (SBUs) as well as higher interest expense.
  • Frasers Property's 9MFY19 operating EPS of 8.9 Scts (PATMI of S$313.9m) made up 71% of our FY19 forecast, broadly within expectations.

Slower residential contributions offset by improved rental income

  • Singapore PBIT dipped 7.2% y-o-y in 3QFY19 on lower residential contributions even as unbilled presales declined to S$0.2bn. This was partly offset by maiden contributions from PGIM ARF, rental income from Frasers Tower and Northpoint City South Wing, and increased REIT distributions and fee income.
  • With the recently-launched Riviere achieving an estimated 7% take-up rate to date and the divestment of 50% in Frasers Tower, we anticipate Singapore SBU’s contribution to remain subdued in the near term.

Higher residential handovers scheduled for 4QFY19

  • Australia PBIT declined 46.6% y-o-y in 3QFY19, with a lower number of residential units settled (245 units) and slower commercial & industrial (C&I) development earnings. While the Australian residential market appears to be bottoming out, the volume of transactions remains thin. The group sold 195 units in 3Q and plans to release a further 1,200 units, mainly in NSW and Victoria, over the remainder of FY19. A further 890 units are scheduled to be handed over in 4Q.
  • Meanwhile, it continued restocking its residential and industrial land bank in 3Q with the addition of 3,325 residential units in Victoria and the securing of 53ha of industrial sites, thus extending the earnings visibility of this business.

Better performance from Thailand and Vietnam

  • Hospitality, Europe and rest of Asia's PBIT continued to be under pressure in 3Q19 with lower performance y-o-y due to divestment of industrial assets in 4QCY18 and lower China development contributions and unbilled revenue of S$0.8bn, albeit partly offset by higher income from Thailand and Vietnam.
  • Nonetheless, the operating metrics of its industrial and business parks in Europe and the UK remained robust with average occupancy rate still at a high level of 80% and positive rental reversion of 5% YTD.

Maintain ADD

  • We tweak our FY19-21F core EPS by 0.4-0.7% post results and maintain our Target Price at S$2.08, based on a 35% discount to RNAV.
  • Frasers Property’s net debt to equity ratio stood at 73.6% at end-3QFY19, down from 83.8% a year ago, with c.14% of debt due to be refinanced in FY20F.
  • Active capital deployment is a potential re-rating catalyst while downside risks include slower value unlocking activities due to weaker macro outlook.

LOCK Mun Yee CGS-CIMB Research | 2019-08-13
SGX Stock Analyst Report ADD MAINTAIN ADD 2.080 SAME 2.080