Frasers Centrepoint Ltd -
Ready for the big league
We believe FCL is significantly underpriced, backed by its portfolio ofundervalued assets with redevelopment potential and S$3.2bn presalesyet to be booked. The capacity to lift its asset recycling/ AUM platformis considerable with TCC on board. The stock’s low free float is stillprohibitive for large investors but we think this will change over time.
We begin coverage with an Add ratingand a target price of S$2.06, set at a30% discount (1x P/BV) to RNAV.FCL is trading at a 48% discount toRNAV, much wider than the sectoraverage of 34%. Potential catalystsinclude successful asset recycling and moves to increase the stock’s free float. Downside risks come from weaker-than-expected demand for REITs and commercial/retail rents.
"The demerger will reinforce FCL’s position as a full-fledged international real estate company with a diversified portfolio…As a standalone listed entity with its own independent Board and management team, FCL will enjoy greater corporate visibility and have direct access to capital markets to pursue its growth strategies"
– FNN’s FY13 corporate statement
Ready for the big league
FCL is an property developer and investor. With a GAV of S$10.5bn, 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 FY13 with over S$3.2bn of presales yet to be recognised or 72% of its revenue in FY14-15. We think there is considerable redevelopment or AEI potential for its existing Singapore commercial properties (54% 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 back to shareholders.
Free float to rise over time
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 FNN, we believe the owners are now in the money. At current share prices, we view FCL as substantially underpriced relative to FNN 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$3.2bn unbooked presales, and 3) potential development and AEI upside for its existing portfolio.
Publish date: 13/01/14