First Sponsor Group - Phillip Securities 2022-11-02: Dongguan Projects See Better Sales

FIRST SPONSOR GROUP LIMITED (SGX:ADN)

First Sponsor Group - Dongguan Projects See Better Sales

See First Sponsor Group's announcement dated 28 Oct 2022 – no financials provided in a voluntary 3Q22 business update.
Housing policy relaxation measures in Dongguan drove sales higher. Time Zone saw faster sales in 3Q22 vs 1H22.
First Sponsor Group’s European property holdings (PH) segment saw stronger performances for both its office and hotel portfolio.

Lower tax liabilities saw a higher recovery of First Sponsor Group’s RMB330mil PRC defaulted loan. The Group’s total tax liabilities for its Pudong Villa and Pudong Mall were settled at about RMB35mil lower than expected.
Maintain ACCUMULATE recommendation on First Sponsor Group with unchanged SOTP-based target price of S$1.39. Catalysts for a target price upgrade are a recovery in the Chinese property market and its China hotel portfolio.

Residential sales of First Sponsor Group's 17.3%-owned Humen development saw sales accelerate in 3Q22 to 306 units vs 329 units sold in 1H22. The better sales reflect the recent ease in housing policy restrictions in Dongguan as the Group released another 255 units during the quarter. Housing policy restrictions in Dongguan have been mostly lifted except for the five core districts, where some degree of restrictions are still in place.

First Sponsor Group’s operating results in this segment came in at 77% of FY22e. Its Bilderberg hotel portfolio saw a strong recovery with occupancy increasing to 73.2% vs 64% in the same period last year. The recovery in its hotel properties was driven by a combination of fewer COVID-19 restrictions and strong leisure and meeting business.

During the quarter, First Sponsor Group’s PRC PF loan book stood at RMB1.2bn (-9% y-o-y) as at 30 Sept 2022, above our estimate of RMB1.09bn. The repayment came from the repayment from the S$97mil and S$89mil junior and senior convertible bonds which it hold for the purpose of financing the acquisition and conversion of the land parcel, and the development of Oasis Mansion.

First Sponsor Group’s total tax liabilities for its Pudong Villa and Pudong Mall were settled at about RMB35mil lower than was initially projected. The net effect of this is an overall improvement in its overall net auction proceeds to RMB306mil from RMB271.6mil previously and an improvement to the overall book exposure to RMB80.9mil from RMB112.8mil.

The legal title of the Pudong Mall as well as net auction proceeds of the Pudong Villa are expected to be transferred to the Group in 3Q22. As First Sponsor Group managed to win the title of the mall through an auction process, we believe there is upside to the valuation of the mall at the end of the year when a valuation is done.
We believe First Sponsor Group will attempt to divest the mall to recover the shortfall, which we estimate to be in FY23e.

The pre-sales for the three residential blocks in Panyu, Guangzhou, with 177 units was launched on 26 May this year, with only 13% of the units sold as the weak macro backdrop weighed on sales. ASP of RMB26,200sqm is on the lower end of the spectrum, but we expect pricing to remain stable as First Sponsor Group will launch the smaller units in 2H22, which should support pricing.

First Sponsor Group has won four new residential projects in Dongguan. The first two are JVs to develop two residential projects in Dongguan, one in Dalingshan and the other in Wanjiang, both won in public tender exercises. Subsequently, it acquired another two more Dongguan residential development projects in Shilong and Shijie respectively. With most of the housing restrictions now lifted in Dongguan, except for its five core districts, we expect sales to be robust for its projects in Shilong and Shijie.
First Sponsor Group’s PRC PF loanbook is expected to see a further reduction in 4Q22, in line with our forecasts. We expect further repayments from the Group’s 48.2%-owned Oasis Mansion as it is already under development and has generated healthy pre-sale results. For FY22, we expect First Sponsor Group’s PRC PF loanbook to be ~RMB1bn.

First Sponsor Group is backed by a strong balance sheet, substantial unutilised committed credit facilities and potential equity infusion from the exercise of outstanding warrants. Its gearing improved to 0.18x in 1H22 vs 0.38x for FY21, as it realised a substantial infusion of cash ~S$258mil in PRC loan repayment during the period. We continue to model for these repayments to continue in FY22e and FY23e against the banks more aggressive lending policy. All of this will further strengthen the cash resources of First Sponsor Group and enable it to capitalise on any new business opportunities when they arise.

We view the latest round of property relaxation measures in Dongguan positively. We believe the relaxation measures will provide support for the upcoming projects First Sponsor Group will launch in 2H22.
Catalysts for a target price upgade are a recovery in the Chinese property market and its China hotel portfolio.

Terence Chua Phillip Securities Research | https://www.stocksbnb.com/ 2022-11-02

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 1.390 SAME 1.390