First Sponsor Group - Phillip Securities 2020-09-21: Your Financier, Developer & Landlord

FIRST SPONSOR GROUP LIMITED (SGX:ADN) | SGinvestors.io FIRST SPONSOR GROUP LIMITED (SGX:ADN)

First Sponsor Group - Your Financier, Developer & Landlord

  • Unrecognised property development revenue of S$586mn with another S$1.95bn worth of gross development value (GDV) to be unlocked, equivalent to 5 years of sales.
  • Property financing loan book grew at 19% CAGR in the past 5 years. These securitised loans offer recurring income at low to mid-teens returns. We are estimating loan book growth of around 8% for FY20e and FY21e.
  • Initiate coverage on First Sponsor Group with BUY and target price of S$1.65.



First Sponsor Group - Company Background


Hong Leong Group

  • Hong Leong Group is a globally diversified company with gross assets of over S$40bn, owned by the Kwek family. It employs some 30,000 people around the world. The Group’s four core businesses are property development, hotels, financial services, and trade & industry.

Tai Tak

  • Tai Tak is a family-owned (Ho family) private company incorporated in Singapore in 1954. It invests in a wide range of businesses, including plantations, listed and private equities, property holding and development. The Tai Tak family is one of the largest shareholders of UOB (SGX:U11) (Target Price: S$20.40, see report: United Overseas Bank - Phillip Securities 2020-08-11: Business Headwinds Weigh In). The family was a co-founder of the bank with the Wee family and was the second largest shareholder until the merger of UOB and Overseas Union Bank.

First Sponsor Group has three operating segments: Property Development, Property Holding and Property.

  • Property Development
    • 6 mixed (residential and commercial) developments in China (Chengdu and Dongguan);
    • 1 residential and 2 commercial developments in The Netherlands (Rotterdam) and
    • 1 hotel and residential development in Australia (Sydney).
  • Property Holding
    • 18 hotel operations and 6 office investments in China, Netherlands, Germany and Italy.
  • Property Financing
    • Property financing services in China, The Netherlands, Germany and Australia.

Financing

  • Property Development is historically First Sponsor Group's largest revenue contributor. In FY19, it contributed 50%, followed by Property Financing’s 27% and Property Holding’s 22%. The bulk of First Sponsor Group’s income is derived from its operations and assets in the PRC (FY19: 58%) and Europe (40%).
  • In 2015-2019, profit after tax and net asset value grew at CAGRs of 19% and 10% respectively. Property Financing has the highest gross profit margin.


First Sponsor Group - Investment Merits


1H20 unrecognised revenue equates to 1-2 years of sales; GDV to unlock is equivalent to 5 years of sales; demand for Dongguan’s residential properties exceeds expectations.

  • Unrecognised revenue as of 1H20 from development properties amounted to S$586mn. First Sponsor Group holds GDV of S$1.95bn that has yet to be unlocked. Buying sentiment in Dongguan exceeded First Sponsor Group’s expectations after business resumed in late February 2020. Residential units at most of its projects that were launched in April have been almost fully sold. Another residential block in The Pinnacle was launched for pre-sales on 14 July and has sold more than 85%.

Humen TOD to become one of First Sponsor Group’s largest development projects.

  • First Sponsor Group won the bid for a mixed-use development on 29 June at RMB6.6bn (c.S$1.3bn) in a joint venture with China Poly Group (CPOLYZ CH) and China State Railway Group (390 HK). The land will be developed into a transit-oriented development with more than 1mn sqm Gross Floor Area (GFA). First Sponsor Group has a c.17% effective equity interest in the JV.

High recurring income for its Chinese property financing business plus double-digit growth in securitised loan book.

  • First Sponsor Group charges interest rates of low to mid-teens p.a. for its property financing business. LTV of its loan book is 40-60%. PRC loan book grew at a CAGR of 19% from 2015 to 2019. 1H20 loan book grew 12% y-o-y to RMB2,295mn (S$459mn).
  • To date, First Sponsor Group has not incurred any bad-debt losses in property financing. We are estimating loan book growth of around 8% for FY20e and FY21e.


First Sponsor Group - Valuation

  • We initiate coverage of First Sponsor Group with a BUY rating and RNAV-derived target price of S$1.65. Our target price implies a total potential return of 33.6% and dividend yield of 1.75%. It is based on a 30% discount to First Sponsor Group’s fully-diluted RNAVPS (@1,102mn shares after adding outstanding warrants).
  • Based on its current number of shares (912mn), we derive a target price of S$1.99. First Sponsor Group trades at 0.6x FY20e P/B versus its historical 5-year average of 0.7x.

Key Risks


Rental abatements provided to retail tenants during COVID-19.

  • Due to the impact of COVID-19, several retail tenants in the Star of East River retail mall requested for concessions to their rental obligations. The amount of rental abatements provided as of 1H20 was about three months of rent. We are expecting an additional waiver of three months to help the tenants tide over the crisis. Total amount of arrears is estimated to be S$2mn.

Reassessment of development pipeline to slow down growth plans.






Tan Jie Hui Phillip Securities Research | https://www.stocksbnb.com/ 2020-09-21
SGX Stock Analyst Report BUY INITIATE BUY 1.65 SAME 1.65



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