Frasers Property Limited - CGS-CIMB Research 2021-02-11: Proposing A Rights Issue

FRASERS PROPERTY LIMITED (SGX:TQ5)

Frasers Property Limited - Proposing A Rights Issue

Frasers Property announced a proposed S$1.28bn renounceable rights issue.
Proceeds to strengthen Frasers Property's balance sheet and enhance business resilience.
Reiterate ADD with a lower RNAV-based target price of S$1.41.

Frasers Property Limited (SGX:TQ5) has announced a proposed renounceable rights issue of up to 1,085.3m new shares at S$1.18 per unit, on a basis of 37 for every 100 existing shares, to raise S$1.28bn of net proceeds. The rights issue is not underwritten. See Frasers Property's announcements.
Major shareholders, TCC Assets Ltd and Thai Beverage (SGX:Y92), have given an irrevocable undertaking to subscribe for their pro-rata entitlements of the rights shares.
The rights price represents a 4.8% discount to the last traded Frasers Property's share price, a 3.6% discount to the theoretical ex-rights price of S$1.224 (as at 10 Feb 2021) and a 47.5% discount to the proforma adjusted Dec 2020 NAV of S$2.25 per share.

According to Frasers Property's management, the rationale for the rights issue is to enhance business resilience through continued exposure in the industrial/logistics/business parks segment, to build financial agility through capital partnerships and to strengthen the balance sheet.
In terms of utilisation of net proceeds, ~S$700m is intended for the acquisition, investment and capex for the development of industrial logistics and business parks assets. Another S$250m is allocated towards establishment of private funds or joint ventures to invest in property assets (including commercial and ancillary assets) as well as up to a further S$330m for strategic investments, acquisitions, development/redevelopment of existing as well as general corporate expenses.

In terms of financial impact, the rights issue is likely to expand Frasers Property’s issued share base by ~37% to 4,018.5m shares.
The proforma net debt to equity ratio is projected to decline from 1.05x as at Sep 2020 to 0.81x, after adjustment to reflect the rights issue & the relevant transactions.
Meanwhile, Frasers Property's proforma FY20 earnings per share could be reduced by 13% on a similar basis while proforma FY20 book NAV per share could dip from S$2.58 to S$2.20.

We lower our Frasers Property's FY21-23F earnings per share estimates to factor in dilution from the expansion in share base and interest cost savings assuming the proceeds are utilised to reduced debt in the near term. We have not baked in any deployment of proceeds into new investments. Accordingly, our RNAV and target price for Frasers Property slide 17% to S$2.57 and S$1.41, based on an unchanged 45% discount to RNAV. Figure 2 in report attached below shows the complete breakdown of Frasers Property's RNAV.
See Frasers Property Share Price; Frasers Property Target Price; Frasers Property Analyst Reports; Frasers Property Dividend History; Frasers Property Announcements; Frasers Property Latest News.
We view the rights issue as an attractive entry opportunity to participate in the growth prospects of the company. Active capital deployment is a potential upside catalyst. Downside risks are slower value-unlocking activities due to the weaker macro outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-11

SGX Stock Analyst Report ADD MAINTAIN ADD 1.41 DOWN 1.700