Property earnings to catch up
Slower property sales recognition, i.e. timing issues led to the miss in FNN’s 3Q13 results. Unbooked presales remain high, occupancy and rents for its commercial and hospitality portfolio stayed robust and F&B volumes and margins continued to recover.
Overall, we see this as a good result. 3Q13 core earnings formed 22% of our full-year estimate (9M13 at 63%) and 20% of consensus. We adjust our development sales recognition schedule and FY13-15 core EPS by -5%/+4% but keep our target price, still at 20% discount to its property RNAV. Maintain Outperform, with more corporate actions expected to act as share price catalysts.
F&B recovery intact
FNN’s 3Q13 revenue inched up 4% yoy, driven by a strong F&B segment. Soft drinks revenue rose 11% yoy, with brewery volumes in Myanmar up 10% yoy. Dairies revenue dropped 5% yoy due to a combination of last year’s high base in Thailand and price competition in Malaysia. But better cost management resulted in a 9% rise in dairies PBIT for 3Q13. Overall, the recovery of its F&B operations is intact, with raw material prices locked in for the mid-term.
Property to catch up
Development PBIT rose 8% yoy, slower than expected due to timing issues. Its OCP projects (c.70% sold) in Sydney, Australia will be completing in stages in 3Q13-3Q14. OCP West was recently completed but only saw 180 settlements booked for 3Q13. We expect property earnings to catch up in the next 12 months, with unbooked presales robust at S$3.3bn. Commercial property revenue rose 19% yoy, driven by stronger rents and occupancy from its REITs and non-REIT portfolio, and stronger room revenue (+141% yoy) from Fraser Hospitality with contributions from newly opened properties in the UK, Australia and Singapore.
More clarity from TCC/Thai Bev on its restructuring plans for FNN’s F&B and property businesses will be the key things to watch for and could catalyse the stock. Meanwhile, we estimate that investors will be getting its property business at an implied discount to RNAV of 38%, among the widest in the sector.
Publish date: 12/08/13