Frasers Centrepoint

CIMB Research, Jan 11

WE believe Frasers Centrepoint (FCL) is significantly underpriced, backed by its portfolio of undervalued assets with redevelopment potential and S$3.2 billion presales yet to be booked.

The capacity to lift its asset recycling/assets under management (AUM) platform is considerable with TCC on board. The stock's low free float is still prohibitive for large investors, but we think this will change over time.

We begin coverage with an "add" rating and a target price of S$2.06, set at a 30 per cent discount (one time P/B) to revalued net asset value (RNAV).

FCL is trading at a 48 per cent discount to RNAV, much wider than the sector average of 34 per cent. Potential catalysts include successful asset recycling and moves to increase the stock's free float. Downside risks come from weaker-than-expected demand for real estate investment trusts (Reits) and commercial/retail rents.

FCL is a property developer and investor. With a gross asset value (GAV) of S$10.5 billion, it is up there with Singapore's big-cap property developers. Its timing of the Singapore housing market has been good (mostly sold) and it made an early entry into its core overseas markets (Australia and China).

FCL exited FY2013 with over S$3.2 billion of presales yet to be recognised or 72 per centof its revenue in FY2014-15. We think there is considerable redevelopment or asset enhancement initiative (AEI) potential for its existing Singapore commercial properties (54 per cent of GAV), many of which are dated and under-rented but in prime locations.

With TCC on board and the right blend of income-producing and development assets, we believe there is considerable capacity for FCL to expand its asset recycling/AUM platform. A new hospitality Reit is a real possibility for 2014, while more mature malls could be recycled with proceeds re-invested in developments and/or AEIs, or simply returned to shareholders.

We believe that Thai Bev and/or TCC will do more to increase FCL's free float. This will help improve investor participation and narrow the valuation discount, in our view. This move is likely to depend on market forces. But based on the current share prices of FCL and Fraser and Neave (F&N), we believe the owners are now in the money. At current share prices, we view FCL as substantially underpriced relative to F&N on a pre-demerger basis.

At current levels, we believe the market has not attached any value to: 1) its asset recycling/AUM platform, 2) its S$3.2 billion unbooked presales, and 3) potential development and AEI upside for its existing portfolio.

ADD