ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

DBS Group Research . Equity 14 Nov 2014, maintain BUY, TP S$2.05:

Amongst the big guys
• Strong end to FY14; final DPS of 6.2 Scts
• Upward earnings trajectory from unrecognized
revenues of S$3.9bn; recurring revenues from
Australand
• BUY, TP S$2.05 (based on 40% discount to RNAV)
Highlights
Strong end to 4Q14 results
• Frasers Centerpoint Limited (FCL)’s FY14 revenues and PBIT
rose by 33% and 21% y-o-y to S$2.7bn and S$0.7bn,
respectively. Attributable profit (after fair value adjustments)
fell 31% y-o-y to S$501m, mainly due to one-off expenses
from restructuring costs of S$42m (debt repayment prior to
listing) and acquisition costs attributable to Australand. The
group also proposed a final DPS of 6.2 Scts (8.6 Scts for
FY14), which is a pleasant surprise. NAV increased 8.4% to
S$2.23/unit.
• There was improvement portfolio-wide, with major
contribtions from (i) 29% y-o-y increase in PBIT from
completions of its overseas development projects across
Australia (One Central Park), China (Chengdu Logistics Hub)
and UK (Riverside Quarter) as well as the sale of Changi City
Point to FCT, (ii) 8.6% y-o-y uplift in PBIT for Investment
properties division due to better efficiencies and higher
occupancies, offset by (iii) a 3% y-o-y decline in PBIT from
its hospitality division.
• Debt/Equity ratio increased to 0.95x post acquistion of
Australiand and issue of S$600m in perpetuals, which was
lower than the c.1.1x-1.2x previously guided.
Outlook
Locked-in unrecognized revenues of S$3.9bn to underpin
growth
• Over the next few years, FCL is expected to recognise close
to S$1.7bn from its development projects in Singapore,
S$0.5bn from Australia and China, and Australand
(S$2.2bn). Major project launches in the coming year such
as Northpoint City in Singapore, Putney Hills and Central
Park in Sydney, will underpin further growth in the medium
term.


Contribution from Australand, Investment property division to
enhance recurring earnings
• FCL’s recurring income to increase substantially with the
contribution of Australand in 2015 (60%-70% of EBIT of
office and industrial portfolio), while in the medium term,
the construction of Punggol Point and Northpoint City will
underpin growth in recurring income.
Valuation
We recommend Buy on Frasers Centrepoint Ltd with a target
price of S$2.05, based on a 40% discount to
RNAV.
Risks
Small free float
• The stock has low free float with 87.9% of the company
held by major shareholders TCC Group and Thai Beverage,
thus leading to low liquidity.

Post Analyst Luncheon, CIMB maintain ADD:

Strong growth ahead
The integration of ALZ will improve FCL’s earnings visibility, and position in Australia. Moving forward, we expect the next leg of growth to come from China and ALZ’s industrial development capabilities. Net gearing post S$1.2b of perpetual securities is expected to be ~0.83x and future funding needs can be addressed through multiple avenues. Maintain our Add rating as FCL is cheap at 45% discount to RNAV, has a clear growth path ahead and addressed its funding/gearing issues. Our RNAV-based target price (30% discount) drops marginally for our lower A$/S$ rate assumptions but FY15-16 EPS rises by 7-15% as we incorporate ALZ. Capital recycling initiatives and earnings delivery could be key catalysts.
Strong results, overlooking the one-offs
FCL reported its FY14 core net profit of S$566m, above our and consensus full year forecast by ~18%, largely on overseas development earnings recognition on completion. Final DPS of 6.2 Scts was announced, bringing total FY14 DPS to 8.6 Scts. This translates into FY14 dividend yield of 5.4%.
Strong growth ahead
Management reiterated its growth strategy that focuses on its three core markets- Singapore, Australia and China. The acquisition of Australand (ALZ) provides a valuable platform, strong recurring income (~A$194m EBIT in FY13) and S$1.7bn of presales. This improves FCL’s earnings visibility and its position in Australia. Moving forward, the third leg of growth is likely to come from China, in the form of mixed developments (in which FCL has strong capabilities). ALZ’s industrial portfolio and development expertise could be an additional avenue of growth.
Gearing and funding needs addressed
Higher net gearing and funding needs required for the growth can be addressed via several sources. Firstly, FCL has received shareholders’ approval to issue another S$600m of perpetual securities, which will lower gearing to 0.83x from 0.95x as of end FY14. Secondly, total presales of ~S$4bn and recurring income of more than S$400m p.a. will help to mitigate risks stemming from higher gearing and interest costs post the acquisition. Lastly, FCL has been active on the capital recycling front and we expect more divestments in the future (potentially FCL’s office/hospitality assets and ALZ’s office assets).

Results highlights
FY14 revenue and pretax profit increased 33% and 21% yoy, respecitvely, largely driven by the completion of overseas development projects in Australia, China and the UK. The divestment of Changi City Point to FCT also contributed to the increase. Core net profit grew 33% yoy in FY14. However, lower fair value gain of S$126m (vs. S$276m in FY13) and higher exceptional loss from restructuring and acquisition cost caused reported net profit to decline 31% yoy.
Key takeaways from results briefing and post-results luncheon
We attended the 4Q14 results briefing and hosted a post-results luncheon for FCL. The key issues addressed were:
1) Plans for Australand (ALZ)
FCL’s immediate goal is to integrate ALZ’s portfolio. We believe that Frasers Commercial Trust (FCOT SP) will receive the right of first refusal (ROFR) for the mature office assets. ALZ is one of the market leaders in terms of industrial development capabilities, which could be extended beyond Australia. While this may not materialise in the near term, we believe that the listing of an industrial REIT would be an exit option for FCL eventually.
2) FCL’s geography mix going forward
Management stated that: 1) FCL would like to retain its strong platform and position in Singapore, as well as build on the ALZ platform in Australia. China is a core market that FCL would like to participate in for the long term, given its rising urbanisation and wealth. FCL has built platforms in the three cities- Songjiang, Chengdu and Shanghai- and aims to strengthen its presence in China. We believe that future initiatives could take the form of partnerships or acquisitions (if the right target presents itself).
3) Gearing
Net gearing at end-FY14 was 0.95x, which is within management’s comfort level of 0.8-1.0x. FCL has obtained shareholders’ approval to issue another S$600m perpetual securities to TCC. This is expected to bring its net gearing down to ~0.83x. Apart from that, the presales of ~S$4bn and strong recurring income of more than S$400m p.a. will alleviate funding risks in the future. Additionally, further needs may also be addressed through divestments of ALZ’s office portfolios and FCL’s office/hospitality assets.

(13-11-2014, 11:15 AM)greengiraffe Wrote: [ -> ]FCL, cimb maintain ADD:


Company: FCL SP
Event: FY14 results above on strong overseas contributions
Recommendation Add
Share Price/Mkt. cap: S$1.585/S$4.6b
Target Price: S$2.12


What happened. FCL reported its FY14 core net profit of S$543m, above our and consensus full year forecast by ~14%. Full year revenue and PBIT increased 33% and 21% yoy, largely driven by completion of overseas development projects in Australia, China and UK. Divestment of Changi City Point to FCT also contributed to the increase. Attributable profit before fair value change and exceptional items was also up 25% yoy. However, lower fair value gain of S$126m (vs S$276m in FY13) and higher exceptional loss from restructuring and acquisition cost brought attributable profit down 31% yoy.

What we think.

* Strong set of results, overlook the exceptionals
This is a strong set of results, and largely from 1) higher overseas contributions, 2) higher contributions from FCT and FHT and 3) one-month of consolidation of Australand results. While one-off exceptional loss from restructuring and acquisition costs of ~S$112m brought attributable profit down yoy, we expect the acquisitions of Australand to contribute positively to FCL's bottomline next year onwards.

* Active capital recycling
A quick recap on what FCL has done in the past year reveals that it has been active on the capital recycling front, having 1) listed its hospitality assets through FHT, 2) divested Changi City Point to FCT and 3) acquired Australand. While the issuance of S$1.2b of perpetual securities will bring FCL's net gearing down to ~83% (a level management highlight as a comfortable range), we do not rule out further capital recycling in the year to come.




What you should do. Our previous recommendation is an Add. We will update with more details post the briefing and luncheon.
Regards
Tan Xuan
Equity Research
CIMB Securities Ltd
50 Raffles Place #19-00, Singapore Land Tower, Singapore 048623
Tel: +(65) 6210 8698 | Email: xuan.tan@cimb.com

ALZ's residential landbank and apartments:

http://www.australand.com.au/Our-Propert...ents-Homes

The breakdown between commercial and industry properties of ALZ as follows:

This is the last published breakdown of the portfolio excluding revaluations prior to FCL's bid.

http://phx.corporate-ir.net/External.Fil...lwZT0z&t=1

http://phx.corporate-ir.net/External.Fil...lwZT0z&t=1

Office 17 properties 269,367sm BV1,190.8 WALE4.8 Occupancy93.6% Cap Rate 7.51% as of 31 Dec 13

http://www.australand.com.au/Our-Propert...ial/Search

Industrial 51 properties 942,832sm BV1,197.1 WALE5.8 Occupany96.1% Cap Rate 8.44% as of 31 Dec 13

http://www.australand.com.au/Our-Propert...ial/Search

> Secondly, total presales of ~S$4bn and recurring income of more than
> S$400m p.a. will help to mitigate risks stemming from higher gearing and
> interest costs post the acquisition.

Australand A$190M Earnings from Investment properties
FCL REITs S$ 54M
Hospitality S$ 68M

Is that how they derive the S$400M recurring income? That's a significant level of assured income !!!

No bullish sign! Must wait for the year 2015 I guess

BOA ML, Feedback from results briefing

We maintain our Buy rating on FCL with unchanged PO. We expect FCL’s 8.6ct
dividend payout to be sustained going forward and help narrow FCL’s valuation
discount. FCL held a FY14 results briefing earlier and provided some feedback on
the numbers and its plans for Australand (ALZ). The key takeaways below.
Dividend payout. FCL proposed a 8.6ct payout in FY14, translating to a 5.4% yield
(on last closing date) and a 45% payout ratio. Management says that its payout ratio
ceiling is at 75% of operating income and recognizes the investor community’s
preference for a stable dividend payout ratio. With this being FCL’s first full-year
result, we believe this payout ratio set is likely to be a base case for management to
work with. We expect FCL’s dividend payout to be sustainable.
Feedback on ALZ. Residential and industrial were singled out as the segments that
they are most keen to expand in, segments that ALZ has strong franchises. In the
medium-longer term, FCL may be open to explore setting up an industrial REIT
once the portfolio attains a certain scale and if market conditions are conducive.
Leveraging ALZ’s and TCC’s (its major shareholder) expertise in the segment to
explore investment opportunities in Thailand is another longer-term possibility. FCL
also guided that part of ALZ’s commercial property portfolio could be offered to
FCOT (its sponsored office REIT) at some point.
Capital management. FCL is comfortable with a 0.8-1x net gearing ratio and is in
no urgency to deleverage. It noted that its net gearing ratio would naturally come off
in time given its c.S$4bn of presales (including ALZ) still unrecognized. Mature
commercial/retail assets at both FCL and ALZ are also alternative sources of
funding once divested into its REITs. Around 30+% of its debt taken to fund ALZ is
denominated in AUD, forming some natural hedge. Management plans to gradually
increase the weighting of AUD debt and put in place hedges on cash-flows.
 Estimates (Sep)
(S$) 2013A 2014A 2015E 2016E 2017E
Net Income (Adjusted - mn) 425 583 564 623 626
EPS 0.147 0.188 0.195 0.216 0.216
EPS Change (YoY) 39.1% 27.4% 4.1% 10.5% 0.2%
Dividend / Share 0.052 0.086 0.080 0.080 0.080
Free Cash Flow / Share (0.186) (1.26) 0.576 0.504 0.414
Valuation (Sep)
2013A 2014A 2015E 2016E 2017E
P/E 10.77x 8.45x 8.12x 7.35x 7.33x
Dividend Yield 3.30% 5.43% 5.05% 5.05% 5.05%
EV / EBITDA* 19.90x 14.81x 10.73x 9.98x 9.97x
Free Cash Flow Yield* -11.76% -79.31% 36.35% 31.82% 26.16%

(13-11-2014, 05:13 PM)greengiraffe Wrote: [ -> ]This is a fresh coverage as far as GG is concern...

FCL, BOA ML maintain BUY:

Results above, with dividend surprise; Maintain Buy
FY14E core NPAT of S$544m (+28% yoy) was above expectations, beating our and
the consensus estimates by 13%. The beat was driven by stronger presales
recognitions in Australia. NAV per share rose by 5% yoy, to S$2.23, with headline
ROE up 70bps yoy, to 8.4% (core at 7.7%). These, coupled with a dividend surprise
of 8.6ct, for an attractive 5.4% yield, round up a strong set of results. We maintain
our Buy call on FCL. We will provide more updates after the earnings briefing.
Firm across most segments
Development revenues rose 33% yoy in FY14, driven by stronger overseas projects
that accounted for 61% of FCL’s total development revenues. Project completions in
Australia (3 projects at Central Park Sydney / 98-99% sold) and China (Baitang One
Ph1A-2A) underpinned a 31% yoy increase in development PBIT. PBIT from
investment properties rose 8% yoy, driven by higher rents at One@Changi City and
across most of its existing portfolio, which is at near full occupancy. Hospitality PBIT
declined 3% yoy on increased room supply and competition in the sector.
Unrecognized presales at S$2.2bn
Unrecognized presales as at FY14 stood at S$2.2bn, which we estimate will
underpin FCL’s FY15-16E revenues. Singapore, Australia and China account for
S$1.7bn, S$0.4bn and S$0.1bn of the total amount, respectively. Net gearing as at
FY14 remains high, at 0.95x, but should come off naturally in FY15-16E, as more
presales are booked and contributions from ALZ kick in.
Estimates adjustments
We roll over our estimates to FY17E and adjust our FY15-16E core EPS by +5%/-
10%, on adjustments to our sales recognition assumptions. We also lower our PO to
factor in the higher dividend payout, changes in AUD and our new valuation for
FCT.

If VBs read between the line of what I am saying, I reckon Chaoren will recover all his money pumped into perpetual by the next dividend date.

Net net he still has the same FCL and free perpetuals as "dividends", plus the intangibles of encouraging others to buy his perpetuals and lock up OPM money. That's HIS maths

VBs need to see if your math matches with his.

Position along the tide is fine but not love the tide. 水可载舟 亦可翻舟

(13-11-2014, 04:02 PM)specuvestor Wrote: [ -> ]No prices for guessing what is Chaoren's inflow from FCL dividend, even when FCL is practically leveraged up if we see the perpetual as debt rather than equity... net net he pays S$100m+ for the perpetual

IMHO he is an opportunist... and a very good one at that... I give him credit for that. Like I said many times, he and Lippo are not exactly early to the game, but unlike Second Chance, their ability to flip at lightning speed and use the ATM is remarkable. I haven't seen such interesting coporate restructuring since Natsteel.

Same thing is going to happen to Australand I think... more restructuring rather a traditional business per se from Chaoren's point of view. It is up to us how to position together along with the tide rather than love the tide.

Nov. 13 (Bloomberg) -- Co. may look to sell some commercial
properties of AustraLand to its REITs, CEO Lim Ee Seng says in
briefing.
* Frasers Commercial Trust has first right of refusal for
assets
* Possibility of 4th REIT in industrial space

(13-11-2014, 11:26 AM)Contrarian Wrote: [ -> ]Australand has a landbank > 6 yrs if I am right. To acquire in a bullish market? And after buying Australand they are scouting for acquisitions in China?

Indeed the appetite of an elephant... I hope they can guard their own back-side as much as grow the upside.

Between betting on Australia and China, I will choose Australia with its colonial style legal system and superior quality environment where affluent Chinese also endorses.

To do nothing in both cases is a SIN as in the case of City Dev... neither here nor there in terms of core real estate development levels.

As for strategy wise - I like Towkay's garang guni approach. I think the former generals of Capitaland Down Under have not been given a fair go to deliver what they are capable of. Capland has a strategy inline with that of sovereign. Sovereign strategy is wrong term and does not fall in line with a noone like me. I m more concern over my bread and butter and hence I can see Towkay's strategy clearer.

So far, he has demonstrated good discipline in all his execution. While gearing is high, the quality assets are also equally high and in many instances well sought after. To be a fun manager sourcing for cash is simple since the World has no shortage for them. However, the ability to deploy cash into a quality portfolio of assets will be a challenge for many including our wannabe - S Trading - ARA aspiring to be some sort of "stone". Pray hard they don't hit a big stone wall...

Vested
Core
Biased
GG

(14-11-2014, 05:38 PM)specuvestor Wrote: [ -> ]If VBs read between the line of what I am saying, I reckon Chaoren will recover all his money pumped into perpetual by the next dividend date.

Net net he still has the same FCL and free perpetuals as "dividends", plus the intangibles of encouraging others to buy his perpetuals and lock up OPM money. That's HIS maths

VBs need to see if your math matches with his.

Position along the tide is fine but not love the tide. 水可载舟 亦可翻舟

(13-11-2014, 04:02 PM)specuvestor Wrote: [ -> ]No prices for guessing what is Chaoren's inflow from FCL dividend, even when FCL is practically leveraged up if we see the perpetual as debt rather than equity... net net he pays S$100m+ for the perpetual

IMHO he is an opportunist... and a very good one at that... I give him credit for that. Like I said many times, he and Lippo are not exactly early to the game, but unlike Second Chance, their ability to flip at lightning speed and use the ATM is remarkable. I haven't seen such interesting coporate restructuring since Natsteel.

Same thing is going to happen to Australand I think... more restructuring rather a traditional business per se from Chaoren's point of view. It is up to us how to position together along with the tide rather than love the tide.

Nov. 13 (Bloomberg) -- Co. may look to sell some commercial
properties of AustraLand to its REITs, CEO Lim Ee Seng says in
briefing.
* Frasers Commercial Trust has first right of refusal for
assets
* Possibility of 4th REIT in industrial space

(13-11-2014, 11:26 AM)Contrarian Wrote: [ -> ]Australand has a landbank > 6 yrs if I am right. To acquire in a bullish market? And after buying Australand they are scouting for acquisitions in China?

Indeed the appetite of an elephant... I hope they can guard their own back-side as much as grow the upside.

(14-11-2014, 05:38 PM)specuvestor Wrote: [ -> ]If VBs read between the line of what I am saying, I reckon Chaoren will recover all his money pumped into perpetual by the next dividend date.

Net net he still has the same FCL and free perpetuals as "dividends", plus the intangibles of encouraging others to buy his perpetuals and lock up OPM money. That's HIS maths

VBs need to see if your math matches with his.

Position along the tide is fine but not love the tide. 水可载舟 亦可翻舟

I like the last sentence. Never fall in love with your investment. Alignment of interest is an very important consideration, especially for OPMIs

(not vested)

(14-11-2014, 09:19 PM)CityFarmer Wrote: [ -> ]I like the last sentence. Never fall in love with your investment. Alignment of interest is an very important consideration, especially for OPMIs

(not vested)

Agreed! Think the perpetuals (this time) just happens to be a win-win for him and the minorities. Future realization of value from non-cores, reducing leverage, and "steady" flow of earnings will all be similar win-wins. Guess now it's more about execution, and perhaps in future a Sirivadhanabhakdi can be whining about fire-sales.