• FRASERS PROPERTY LIMITED (SGX:TQ5)’s 2Q/1HFY9/19 EPS of 2.1/6.7 Scts made up 17%/53% of our FY19 forecast.
• Rental income boosts Singapore operations; Australia residential handover on track.
• Maintain ADD, Target Price unchanged at S$2.08.

Frasers Property's 2QFY9/19 Results Highlights

• FRASERS PROPERTY LIMITED (SGX:TQ5)’s 1HFY9/19 results were broadly in line, with our expectations with core net profit at 53% of our FY19 forecast, although 2Q came in slightly below at 17%.
• 2Q core net profit declined 10.5% y-o-y to S$99.6m as the 11%/10% y-o-y growth in revenue/gross profit was offset by higher interest expense and lower associate contributions. At core net profit level, its Australia division delivered a better y-o-y showing in 2Q.
• Frasers Property declared an interim dividend of 2.4 Scts, unchanged from a year ago.

Singapore Benefited From Higher Rental Income

• Singapore operation was dragged down by lower residential contributions due to the completion of North Park Residences, albeit partially offset by higher rental income with the commencement of Frasers Tower and Northpoint City South Wing, and better REIT income.
• Its ongoing Seaside Residences project is 87% sold to date and Frasers Property has a remaining S$0.2bn of unrecognised residential sales at end-2QFY19. The launch of 455-unit Riviere is upcoming though no date has been indicated.
• Occupancy of Frasers Property's Singapore retail and office portfolio improved y-o-y with rental reversions of -0.4% to 5%.

Australia Residential Handovers Still on Track

• In Australia, higher residential and REIT contributions offset slower C&I development income. During the quarter, a further 585 residential units were settled; it remains on track to hand over 2,300 units in FY19. However, the pace of new sales slowed with an additional 155 units taken up in 2QFY19.
• Frasers Property lowered its planned release to 1,590 units vs. a 2,300 target earlier. Nonetheless, it continues to have a high amount of unbilled sales of S$0.9bn as at end-2QFY19.

Weaker Hospitality and Europe and Rest of Asia Contributions in 2Q

• Hospitality SBU revenue and PBIT were relatively flat y-o-y while its Europe and rest of Asia division's performance weakened due to lower contributions from China and Europe (from asset recycling and divestments).
• China has a remaining S$0.7bn of unrecognised residential sales at end-2QFY19.

Robust Investment Activities

• Net debt to equity ratio stood at 84.2% at end-2QFY19, relatively flat y-o-y.
• Frasers Property recently acquired a 47.82% stake in PGIM Real Estate AsiaRetail Fund for a consideration of S$960m, to be funded via internal funds or external borrowings. At the same time, it has commenced the sale process of three retail assets in Australia.
• We anticipate the group’s net debt to equity position to tick higher when these transactions are factored in.

Maintain ADD

• We tweak our FY19-21F earnings post results. Our RNAV and Target Price (35% discount to RNAV) remain unchanged at S$3.21 and S$2.08.
• Active capital deployment is a potential re-rating catalyst.
• Downside risks include slower-than-expected value unlocking activities.

Source: CGS-CIMB Research - 3 May 2019