We continue to like FCL for its attractive valuations and maintain an Add rating with a target price of S$2.02 (30% discount to RNAV). The key share price catalyst would be an increase in its low free float.
We visited some of Frasers Australand’s projects in Sydney and Melbourne and met with senior management. Management indicated that integration of Frasers Property Australia and Australand is largely completed, with both systems to be fully integrated by the later part of this year. The possibility of rebranding is still being evaluated. While recurrent income remains key to the FCL group, Frasers Australand is looking to ramp up the development portion of the business (residential and commercial & industrial “C&I”) to 50% of asset value from the present c.40% as accelerated residential and industrial development activities consume its landbank. Based on the current development pipeline, these two segments are projected to have a total end value of S$9.7bn vs the current value of S$2.4bn. Residential demand is supported by low interest rates and undersupply in Sydney and Melbourne while renewal and relocation demand from retail and logistics players underpins appetite for industrial space.
What We Think
We see potential synergies being derived from the extension of its skillset from expertise in developing high-density projects to designing, planning and building low-and-medium-density housing and land lots within masterplanned developments. In addition, FCL’s expertise in retail space management could also mean more opportunities in this mixed use market segment. Having a strong market position within the industrial space would enable the group to offer a network of locations to support tenant growth and leasing or development appetite.
What You Should Do
We maintain an Add on FCL as the stock is trading at a steep discount of 38% to its RNAV of S$2.88. The stock offers 13% upside to our RNAV-based target price of S$2.02. The key catalyst would be an increase in the stock’s low free float. (Read Report)
Source : CIMB Research