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Frasers Property Limited - New report: Attractive valuations, with looming catalysts

Shared By Stock Fanatic on Monday, June 18, 2018 | 18.6.18

We initiate coverage on FPL with an OUTPERFORM rating and a TP of S$2.40, implying 30% upside.

● We believe FPL provides an attractive investment proposition comprising healthy earnings growth (14% earnings CAGR to FY19E), REIT-like dividend yields (4.7% in FY18E) and attractive valuations (0.76x P/B, 46% discount to RNAV).

● In our view, the potential free float improvement from restructuring of TCC and ThaiBev’s stakes in F&N and FPL would be a key near-term catalyst to watch. We think Thaibev’s high gearing post the Sabeco acquisition could prompt the restructuring.

Our TP of S$2.40 is based on 30% discount to RNAV of S$3.43. In addition to the stake restructuring, other catalysts include— further capital recycling initiatives (Waterway Point could be a potential candidate by end 2018), further earnings accretive M&A, and a successful launch of its Jiak Kim Street residential project in early 2019. Key risks: Competition for land, execution risks overseas, and macroeconomic risks.

Initiate with OUTPERFORM
We initiate coverage on FPL with an OUTPERFORM rating and a TP of S$2.40, implying 30% upside. We believe FPL provides an attractive investment proposition comprising healthy earnings growth (14% earnings CAGR to FY19E), REIT-like dividend yields (4.7% in FY18E), and attractive valuations (0.76x P/B, 46% discount to RNAV), with the potential F&N/FPL restructuring a near-term value unlocking catalyst.

Superior capital productivity; earnings support from recurring income base
We believe a key attraction of FPL is its superior capital productivity, with core ROEs consistently above its peers since listing (FY18E: 6.4%), supported by FPLs proactive approach to acquisitions and its active capital recycling strategy. 82% of assets contribute to recurring income, one of the highest vs peers, driving earnings stability. Further, Singapore remains a core market for FPL (37% of our GAV estimates, of which 8% residential), and we expect FPL to be well poised to benefit from the market upturn from 2018.

Technical Analysis
Daily Chart
Key catalyst: F&N/FPL restructuring to unlock value
We believe FPL trades at a significant RNAV discount of 46% currently (vs peer average: 28%), largely due to its low float of 13%. In our view, the potential free float improvement from the restructuring of TCC and ThaiBev’s stakes in F&N and FPL would be a key near-term catalyst to watch. While there was previously low urgency in such an exercise; we think Thaibev’s high gearing post the Sabeco acquisition could be a key driver to prompt a restructuring, thereby unlocking the liquidity discount in FPL, and driving value creation for the broader TCC group.

Source : Credit Suisse Asia Pacific Equity Research
(Read Report)

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Posted on Monday, June 18, 2018 | 18.6.18
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