Australand take-over ongoing for FCL

3Q14 results in line with expectations. Frasers Centrepoint Limited (FCL) delivered a 3Q14 PATMI of S$109.2m, which was 59% lower y-o-y. The main reason was the revaluation exercise undertaken prior to the listing of FCL back in Jun’13. Stripping out close to S$204m in revaluation gains in 3Q13, on a comparative basis, core 3Q14 PATMI would have risen by 77% y-o-y to S$120.0m. FCL’s balance sheet metrics remained stable with Net Debt/Equity at 0.5x for the quarter.

Portfolio highlights. Revenues and operating profits jumped 41% and 68% y-o-y to S$575.4m and S$147.6m respectively. The improved operational performance was due to FCL’s share of proceeds from the divestment of Changi City Point to FCT, revenue recognition from the completion of Chengdu Logistics Hub Phase 2 in China and sale of completed units at One Central Park and Putney Hill in Australia, and Riverside Quarter in the UK. The group’s hospitality division also saw a 17% y-o-y jump in revenues to S$53.5m, on the back of better occupancies achieved. Its other business divisions – the investment properties and REITs remained fairly stable, offering consistent cashflows to the group.

 Unrecognised revenues from property development close to S$2.56bn. YTD, the group has sold c.410 and 380 residential units YTD in Singapore and in Australia respectively. Locked-in and unrecognised revenues in these two countries are c.S$1.9bn and S$0.6bn respectively, which is expected to be recognised progressively in the coming years. The group has also sold a majority of units launched in China, achieving close to over 1,500 in sales.

Proceeds from listing of FHT to further strengthen balance sheet metrics. In line with its capital recycling strategy, FCL is expected to reap close to S$654.7m in proceeds through the divestment of six serviced residences following the successful listing of Frasers Hospitality Trust (FHT). Assuming that the proceeds are fully utilised towards repayment of debt, debt/equity is expected to further improve to c.0.4x.

Australand completion. FCL has garnered close to 56.8% in acceptance for its take-over offer for Australand and the offer was declared unconditional on 7th Aug’14. The offer is expected to close on 21st Aug’14 and the intention of the group is to eventually delist Australand. Recommendation BUY, S$2.08 TP. Valuations remain attractive at 0.9x P/BkNAV. Maintain BUY with a target price at S$2.08 based on 30% discount to RNAV.