SINGAPORE (Feb 10): DBS Vickers Securities is maintaining Frasers Centrepoint Limited (FCL) at “buy” with a target price estimate of $2, and continues to like the stock for its attractive valuations despite potential headwinds in the property market.
The real estate company on Thursday posted 1Q17 earnings of $187.5 million, nearly double from the $98.7 million declared a year ago and making up 40% of street’s full year forecast.
(See also: Frasers Centrepoint’s 1Q earnings nearly double to $187.5 mil)
The strong growth was driven by higher recognition from sale of development properties, largely contributed by the completion of Phase 3C1 of Baitang One in Suzhou, China, and North Park Residences, as well as the sale of a bungalow at Holland Park.
In a Friday report, analysts Rachel Tan and Derek Tan say they expect re-rating catalysts to come from potential asset monetisation from the company’s ongoing strategies to crystallise values across its portfolio.
“FCL will continue to demonstrate its ability to crystallise value by strategically divesting matured assets to its listed REITs. The group is thus able to free up capital, improve its financials, and recycle capital to projects with higher returns,” they add.
Additionally, they highlight that FCL offers one of the highest dividend yields among developers at about 5.4%, versus the industry average of an estimated 2-3%
“This is mainly due to the group’s efficient operating model of quick-asset turns for its residential development projects and its focus on a portfolio of recurring commercial properties (hotels, retail and office) which boosts returns,” explain the analysts.
The group’s dependence on the outlook of Australia’s real estate market and currency remains a key risk, however, as it derives an estimated 30% of PBIT from the country. As such, the analysts caution that returns could be impacted by the weakening of the AUD/SGD exchange rate.
As at 4.19pm, shares of FCL are trading 4.06% higher at $1.66.
