Frasers Property Limited - CGS-CIMB Research 2020-11-11: Dragged By One-Offs

FRASERS PROPERTY LIMITED (SGX:TQ5)

Frasers Property Limited - Dragged By One-Offs

Frasers Property's 2H/FY20 core EPS of 0.4/6.2 cents was below our expectations.
Higher industrial, Thailand contributions; lower residential, retail, hospitality.
Reiterate ADD with an unchanged target price of S$1.70.

Frasers Property (SGX:TQ5) reported 2HFY20 net loss of S$45.7m on a 17.5% y-o-y decline in revenue to S$1.46bn. See Frasers Property Announcements. The drag was due to lower hospitality and retail rental income and exceptional loss of S$142m, largely from impairment of property, plant and equipment. This was partly offset by higher contributions from AsiaRetail Fund as well as revaluation uplift from investment properties. Excluding the one-offs, net profit would have been S$11.5m, -89.6% y-o-y.
Frasers Property's FY20 net profit of S$188.1m was 66.4% lower y-o-y (S$229.2m excluding one-offs, - 34.5% y-o-y).
Frasers Property proposed a lower final dividend of 1.5 cents. See Frasers Property Dividend History.

The best performing business segment was industrial, delivering a 42.2% y-o-y higher FY20 PBIT to S$351.1m, thanks to higher contributions from the completion of built-to-suit projects, sale of land lots in Australia and expanded Frasers Logistics & Commercial Trust (SGX:BUOU) income base post-merger.
Operationally, the industrial portfolio enjoyed high and stable occupancy with strong leasing activity. It is also developing eight new industrial assets in Australia and Germany, which are scheduled to be delivered in FY21-22F.
Frasers Property Thailand (FPT) also benefited from the merger with Golden Land in Aug 2019. Given FPT’s diversified portfolio, including residential, industrial and commercial assets, we believe it will likely enjoy operational resilience while benefiting from the strong demand for industrial/logistics assets and improving buyer sentiment in the residential market.

On the residential front, Frasers Property sold 59 units in Singapore, from Seaside Residences (94.9% sold) and Riviere (12.5% sold). The group is also planning for its 496-unit executive condominium (EC) site at Fernvale Lane, acquired in 2QFY20.
In Australia, it settled 1,595 units in FY20 and plans to hand over 1,955 units in FY21F. It has a remaining S$1.1bn of unrecognised revenue from Australia residential projects as at end-FY20 and will continue to pro-actively manage settlement risks.

Hospitality FY20 PBIT declined 85.1% y-o-y to S$19.6m as occupancies were impacted by the COVID-19 pandemic, dragged by a 31.4-44.3% y-o-y decline in RevPAR across its portfolio.
Looking ahead, apart from timing new openings or re-openings of its properties, it is continuing to develop marketing campaigns to tap into domestic travel as well as actively planning for regional and global campaigns to prepare for upcoming travel corridors while concurrently reviewing cost management measures.

We lower our Frasers Property's FY21-22F EPS forecast by 10.3-18.6% as we update for the latest residential completion schedule and adjust for latest asset divestments. Our RNAV/Target price for Frasers Property remains unchanged at S$3.08/S$1.70, assuming an unchanged 45% discount to RNAV.
Frasers Property's proforma net debt to equity ratio post divestment of ARF to Frasers Centrepoint Trust (SGX:J69U) and equity fund raising by Frasers Centrepoint Trust is c.0.96x.
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 catalyst.
Downside risk: slower value unlocking activities due to the weaker macro outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-11

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