Frasers Centrepoint

DBS Group Research, Feb 24

WE initiate coverage on Frasers Centrepoint Ltd (FCL) with a "buy" rating. As the fourth-largest listed developer, FCL offers investors a sizeable listed investment option with a market cap in excess of S$4 billion and asset value of S$11.5 billion.

An estimated 47 per cent of its gross asset value is exposed to development properties, 33 per cent to investment properties and Reits, and the remaining to hospitality and other activities. Its core markets are Singapore, China and Australia.

Geographical and business diversification leads to superior return metrics. FCL's diverse geographic and business exposure that includes both emerging / developed markets and recurrent / development income, offers investors a stable cash flow base with good upside growth potential at optimal risk.

This translates into superior core returns metrics of 8-9 per cent ROE when compared to peers. Furthermore, with a strong balance sheet, the group is well-placed to undertake value creating activities on its investment property portfolio, with a view to unlocking value in the medium term through its Reit platform.

FCL has a good track record in reading the residential market trends, particularly in Singapore, and this will stand it in good stead to restock inventory going forward.

Recommend "buy" with a target price of S$2.08. We like FCL for its commanding niche in its key markets of Singapore, China and Australia, and strong pre-sales that provide a very visible earnings stream over the next 2-3 years.

Its sturdy balance sheet will enable the group to reinvest for future growth, as well as undertake value creation activities in its current portfolio.

Key risk is its small free float, with major shareholders, TCC Group and Thai Beverage, holding a total of 87.9 per cent, which we believe can be addressed in the longer run.

BUY