FCL’s results were within expectations, with 3Q core net profit making up 27% of our full-year estimate and 9M making up 72%. The profit uplift came from Frasers Australand, the hospitality segment and residential development operations. Earnings visibility remains robust, with a sizeable S$3.5bn worth of locked-in unrecognised residential billings and a strong rental income base. We keep our current profit and RNAV projections unchanged. Maintain Add and our target price of S$2.02 (pegged to a 30% discount to RNAV).
Strong set of 3QFY15 results
FCL reported a 91% jump in net profit to S$181.4m on a 157% surge in revenue to S$1.01bn. This brings 9MFY15 earnings to S$426.4m or 72% of our full-year forecast. The star performers were Frasers Australand, which benefited from the inclusion of income from Australand, the hospitality segment, with income from newly-purchased hotels as well as the development property business due to income recognition from completed projects, such as Twin Waterfalls EC in Singapore and Gemdale Megacity P2 in China. This more than offset the dip in rentals from The Centrepoint (undergoing AEI) and higher interest expense.
High recurrent base, visibility from development pipeline
In addition to the strong and growing recurrent income base, which makes up 50-60% of PBIT (medium-term target 70%), it has a further S$3.5bn worth of residential billings that could be recognised over the next few years. Overseas development earnings visibility remains clear, thanks to sizeable land bank in Australia and China. With good sales at North Park Residences and only one remaining land parcel in Singapore, it aims to replenish land bank to maintain a 1,000-1,500 units of inventory in the latter. Gearing of 0.91x as at Jun 15 (slightly lower post recent sale of Sofitel Wentworth Hotel and 357 Collins St) appears to be relatively higher than peers. As such, we anticipate more recycling of capital from its commercial, retail and hospitality portfolio in the medium term. Besides the purchase of the Malmaison and Hotel du Vin portfolio in UK, the upcoming completion of Waterway Point Mall and AEI at The Centrepoint should enhance the size and value of its investment property portfolio.
Maintain Add call
We retain our FY15-17 numbers and RNAV estimate of S$2.88/share. Potential catalysts for stock price performance include its increasing free float. (Read Report)