Asset recycling, restructuring for greater liquidity the key catalysts for this developer
Frasers Property (FPL) – which gained just 3.68% last year – underperformed its peers City Developments (+42%), UOL Group (+37.5%) and CapitaLand (+26.2%), excluding dividends. Since the start of this year, CapitaLand is up a further 5%.
By all accounts, FPL is undervalued. At a closing price of $1.72 as at Jan 14, it is trading at a P/B of 0.67 times, lower than CDL’s one times price to book, CapitaLand’s 0.87 times and UOL’s 0.72 times.
Will 2020 and the rest of this decade belong to FPL? The developer ended its FY2019 ended Sept 30, 2019, on a sombre note. Revenue and PBIT decreased by 12% and 3% y-o-y $3.792 billion and $1.293 billion respectively. Net profit after tax fell 25.3% y-o-y to $560.3 million.
Still, FPL made remarkable progress and reorganised some of its regional businesses into a neater structure.
In the CEO’s statement, Panote Sirivadhanabhakdi said, “FY2019 was a year of considerable progress in areas of strategic importance. The efforts we have put in over the past three years to build scalable platforms culminated in the formation of a multi-national integrated industrial and logistics platform and a scaled multi-sector Thailand country platform [in 2019]. We believe these platforms will enable us to harness the strength of the Group to deliver greater network effect.”
In addition, FPL and Frasers Centrepoint
Trust invested around $1.4 billion in PGIM Real Estate AsiaRetail Fund (PGIM ARF).
“FPL could extract value from its recent investment in PGIM ARF, as well as monetise assets to potentially lower its gearing in the medium term. FPL’s managed REITs are actively looking to grow their AUMs and are trading at yields conducive for potential asset monetisation opportunities at an appropriate time,” notes DBS Group Research. Notably, PGIM ARF’s suburban malls fit the profile of FCT’s portfolio.
During the past two years, FPL and TCC Assets, a unit of TCC Group that is a private company controlled by the Sirivadhanabhakdis, had been restructuring the Thai property companies. In 2018, FPL took control of TICON Industrial Connection, an associate company, after a joint venture between subsidiaries of FPL and TCC Assets acquired shares in TICON
from a third-party shareholder and via a mandatory tender offer. TICON was renamed Frasers
Property Thailand. In August 2019, FPT consolidated its holdings in Golden Land Proper
ty Development (which was 39.9%-owned by FPL), following a successful voluntary tender offer. FPT now holds 94.5% of Golden Land, which is in the process of being delisted from the Stock Exchange of Thailand.
FPT is the sponsor of two REITs: Frasers Property Thailand Freehold & Leasehold REIT (FT REIT) and Golden Ventures Real
Estate Investment Trust (GV REIT), which is focused on commercial properties. FPT has also entered into JVs to expand into the data centre and co-working space segments. FPT entered into a 51:49 JV with Mitsui Fudosan Asia (Thailand) Co to develop and manage warehouses and logistics facilities in Thailand. FPT also entered into a 75:25 JV with Sahathai Terminal to invest in, own, develop, operate and manage logistics parks, warehouses and industrial properties in Thailand.
CLSA believes key catalysts for FPL could come from more corporate restructuring and the acceleration of asset recycling. It has calculated an RNAV of $3.60 for FPL, and applied a 40% discount, valuing the company at $2.14.
DBS Group Research has an RNAV $3.38, and a valuation of $2.03 for FPL. The local broker also believes that the key catalysts for FPL’s share price are asset monetisation, better property sales, and higher free float and liquidity, and has retained a buy rating on the stock. —