• Frasers Property's 1QFY9/19 core EPS of 4.56 Scts was above expectations, at 36.6% of our FY19F forecast.
• Y-o-y earnings improvements across all business segments, led by Australian residential.
• Maintain ADD with an unchanged Target Price of S$2.08.

1QFY9/19 Results Summary

• FRASERS PROPERTY LIMITED (SGX:TQ5) reported a strong 1QFY9/19 net profit of S$140m, +87% y-o-y, on a 45% rise in revenue to S$1.08bn.
• The strong performance came largely from Australia residential and China operations. 63% of 1Q PBIT came from recurring sources.
• Gross margins improved 2.6% pt to 39.4%. Core EPS of 4.56 Scts made up 36.6% of our FY19 forecast.

Australian Residential the Star Performer

• During the quarter, Australian PBIT more than doubled to S$139.4m, on the back of strong residential contributions. Frasers Property Australia settled 580 units in 1Q and has a further 1,720 units to be handed over for the remainder of the FY. This compares with a total of 3,040 units settled in FY17.
• Frasers Property sold 319 units in 1Q and plans to release a further 2,000 units for the remainder of FY19. As at end-1Q, it has S$1.1bn of unrecognised Australia residential revenue.
• The commercial and industrial operations also benefited from higher average portfolio occupancy.

Planned Launch of 455-unit Riviere in 1H19

• Singapore PBIT improved a marginal 0.8% y-o-y to S$101.6m as higher retail and commercial rental income, mainly from maiden contributions from Frasers Tower and Northpoint City south wing, was offset by lower residential contributions as most of its residential projects are completed.
• With a remaining small S$0.2bn of unrecognised residential billings in Singapore, Frasers Property plans to launch the 455-unit Riviere in 1H19. We anticipate this development to benefit from its attractive location along the Singapore River.

Improved Hospitality, China and Europe Operations

• The hospitality business in UK improved due to higher inbound tourism flow on the back of a weak £, while properties in Europe benefited from higher leisure and business demand.
• Meanwhile, China residential posted a turnaround in PBIT as 84 units were handed over. It has a balance of S$0.3bn of unrecognised development revenue in China as at end-1Q.
• Rental income from Europe operations was boosted by maiden contributions from UK business parks, partly offset by the loss of income from asset disposals.

Maintain ADD

• We leave our FY19-21F earnings unchanged post results given expectations of lumpy residential earnings. Our RNAV remains unchanged at S$3.20.
• Our Target Price of S$2.08 is based on a 35% discount to revalued asset backing.
• Key catalyst would be active capital deployment given Frasers Property’s net debt-to-equity ratio of 83.6%.
• Downside risks include slower-than-expected value unlocking activities.

Source: CGS-CIMB Research - 13 Feb 2019