Frasers Property Limited - CGS-CIMB Research 2020-05-13: Mixed Performance

FRASERS PROPERTY LIMITED (SGX:TQ5)

Frasers Property Limited - Mixed Performance

Frasers Property's 2Q/1HFY9/20 EPS below expectations, at 10%/36% of our FY20 estimates.
Weaker Australia residential and hospitality; stronger industrial and logistics.
Reiterate ADD with a lower Target Price of S$1.70.

Frasers Property (SGX:TQ5)'s 2QFY9/20 core net profit of S$75.5m was 38.1% lower y-o-y despite a 2.2% increase in revenue to S$954.7m. The improvement in topline came from China residential settlements, maiden contributions from PGIM Real Estate Asia Retail Fund’s (PGIM) retail assets, and consolidation of Golden Land Ltd (GOLD TB); these were partly offset by lower contributions from Australia and hospitality business.
Frasers Property's 1HFY9/20 core net profit of S$233.8m (-12.1% y-o-y) was below expectations, at 38% of our FY20 forecast.
As part of its move to conserve cash, Frasers Property has also temporarily suspended its interim dividend and reduced directors’ fees and senior management salaries.

Singapore PBIT, which made up 31% of Frasers Property's 2Q total PBIT, increased 33% y-o-y to S$129m, with contributions from PGIM, and profits from Seaside Residences (93% sold) and Riviere (11.4% sold), partly offset by lower commercial income due to dilution of stake in Frasers Tower.
Frasers Property also acquired a 500-unit executive condominium (EC) site at Fernvale Lane in 2QFY20. We anticipate its Singapore earnings growth to remain subdued in the near term, with an estimated remaining S$0.1bn worth of unrecognised residential revenue as at end-2Q as well as challenging retail operating environment.

Australia residential and commercial PBIT was lower y-o-y in 2Q due to a lower 177 residential units settled (559 units in 1H). Frasers Property plans to settle another 1,600 units in 2HFY20F. However, due to adverse impact from Covid-19, it had experienced some cancellations on settlement.
Frasers Property sold 280 units in 2Q (570 units in 1H) and has S$0.9bn of unrecognised revenue at end-2Q. The hospitality segment was adversely affected by the Covid-19 outbreak and saw lower contributions on the back of reduced occupancies across all its properties.
Frasers Property has implemented proactive cost containment measures and developed recovery plans to capture demand during this downtime.

Frasers Property's industrial and logistics strategic business unit (SBU) continued to deliver a positive performance with higher income from sale of land lots and built-to-suit projects in Australia, and robust leasing activity in Europe. Meanwhile, Thailand, Vietnam, China and UK delivered a better showing y-o-y due to consolidation of GOLD and higher development profits.

We cut our Frasers Property's FY20F EPS by 20.2% on lower hospitality contributions but tweak up our FY21-22F estimates by 7.8-15.1% as we push back recognition of residential contributions. Our RNAV/Target Price are lowered to S$3.09/S$1.70 as we peg in lower Target Price for its REITs, assuming an unchanged 45% discount to RNAV.
Frasers Property’s net debt-to-equity ratio rose to 106.8% at 2QFY20.
See Frasers Property Share Price; Frasers Property Target Price; Frasers Property Analyst Reports; Frasers Property Dividend History; Frasers Property Announcements; Frasers Property Latest News.
Active capital deployment is a potential upside risk.
Downside risks: slower value unlocking activities due to the weaker macro outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-13

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