Frasers Property Limited - CGS-CIMB Research 2021-05-12: Boosted By One-off Gains

FRASERS PROPERTY LIMITED (SGX:TQ5)

Frasers Property Limited - Boosted By One-off Gains

Frasers Property's 1HFY9/21 net profit rose 18% y-o-y to S$275.8m, boosted by one-off items.
Higher I&L PBIT offset lower residential and hospitality contributions.
Reiterate ADD with an unchanged target price of S$1.41.

Frasers Property (SGX:TQ5) reported a 1HFY9/21 net profit of S$275.8m, +18% y-o-y, on a 26.6% y-o-y decline in revenue to S$1.57bn. The improvement was due mainly to gains from change in use of industrial properties held for sale to investment properties, partly offset by exceptional items and fair value loss on investment properties.
Excluding the one-offs, core net profit would have been S$23m (core earnings per share: S$0.009). Higher industrial and logistics (I&L) contributions offset lower residential and hospitality contributions.

The best performing business segment was I&L, which reported a higher PBIT of S$560.6m vs S$138.3m in 1HFY20 due to the inclusion of Frasers Commercial Trust (SGX:ND8U)’s contributions into Frasers Logistics & Commercial Trust (SGX:BUOU) post-merger and recognition of S$357.9m of gain from change in use of properties held for sale transferred to investment properties.
That said, operating metrics in Australia and Europe remained robust, with occupancy of 96-100% and long weighted average lease expiry of 4.6-5.4 years. Leasing activity remained strong with 346k sqm of renewals/new leases in Australia and Europe in 1H, while rental reversion came in at - 1.1% to -4.8%.
Longer term visibility remains robust with development forward workload of 391k sqm across 13 projects to be competed over the next 2 years.

PBIT from Singapore and Australia residential declined y-o-y with lower progressive profit recognition in Singapore while a different product mix and lower settlements also impacted Australia residential contributions. As at end-1H, there was a balance of S$1.5bn of unrecognised residential revenue from Singapore and Australia.
Frasers Property sold 79 units in Singapore, from Seaside Residences (completed, 100% sold) and Riviere (22.6% sold) in 1H. It plans to launch the 496-unit Parc Greenwich executive condominium (EC) project in 4QFY21 and have received provisional permission to redevelop Bedok Point into a residential development with commercial units.
In Australia, it sold 1,339 units and settled 1,000 units in 1HFY21 and plans to hand over another 1,352 units in 2H.

While hospitality continued to post a S$38m PBIT loss in 1H due to COVID-19 impact on the short-stay business, this was partly offset by positive contributions, albeit lower y-o-y, from Thailand, Vietnam, China and UK.
Looking ahead, management said residential sales are poised for a recovery in Thailand, while occupancy of the industrial and commercial portfolio remains decent at 82-91%. UK business parks are also 88% taken up. Frasers Property has S$0.2bn of unbilled residential revenue in Thailand and China at end-1H.

We adjust our FY21-23F earnings per share estimates for Frasers Property to take into account one-off items and expansion in share base following the completion of its rights issue in Apr 2021 (vs. previous assumption of a 9-month dilution).
We maintain our target price at S$1.41 for Frasers Property, based on an unchanged 45% discount to RNAV of S$2.57.
See
Active capital deployment is a potential upside catalyst.
Downside risks are slower value-unlocking activities due to the weaker outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-12

SGX Stock Analyst Report ADD MAINTAIN ADD 1.410 SAME 1.410