February 12, 2018

FPL reported a 24% yoy decline in 1QFY9/18 revenue to S$740m and a 59% yoy fall in reported net profit to S$77m, due to the absence of sizeable lumpy residential contributions. Excluding fair value change and exceptional items, core net profit would have been S$69.2m, making up 12% of our FY18F forecast.

PBIT fell 12% yoy to S$93m, dragged down by lower residential profits and fee income, partly offset by higher rents from The Centrepoint post AEI. We anticipate Singapore earnings to improve from 2QFY9/18 onwards, with the scheduled completion of Parc Life EC, Northpark Residences and maiden profits from Seaside Residences (65% sold). Rental income should be lifted by the recently-opened Northpoint North Wing and upcoming Frasers Tower (70% pre-leased) completing in 1H2018. Recent win of Jiak Kim St land parcel could add 550 units to their development inventory.

Australia PBIT jumped 65% yoy to S$65m in 1Q, led by higher residential profits from the settlement of 720 residential units and higher REIT income following the injection of 8 properties into FLT. FPL has locked-in unrecognised residential revenue of S$2.1bn as at end-1QFY18 and plans to release 2,500 units for sale on FY18. In the commercial and industrial side, it targets to deliver 9 facilities over the next 18 months. Its office portfolio remained well occupied at 96.7%.

The International division saw PBIT falling 70% yoy to S$41.7m due to the high base in the prior year. This was partly offset by higher contributions from Europe, Thailand and Vietnam. Looking ahead, the planned acquisition of 6 cross-dock facilities in Germany and joint acquisition of the Farnborough Business Park with FCOT, should add to recurrent income when completed.

FPL and TCC Assets have announced that they have entered into a conditional sale and purchase agreement with Rojana Industrial Park to purchase 26.1% of TICON Industrial Connection for THB8.57bn (S$358m) or THB17.90/share. FPL currently owns 40.95% of TICON. As an industrial property developer, TICON can collaborate with FPL to understudy development best practices in Singapore and Australia as well as leverage on FPL’s core competencies to enhance asset management and improve asset value through AEIs. FPL’s net debt to equity ratio stood at 84.3% as at end-1Q.

We tweak our FY18-20F earnings projections post results and update our RNAV for the latest share/target price of its REITs. Accordingly, our revised RNAV and TP are $3.43 and S$2.40 respectively. We continue to like FPL’s strong recurring income base which makes up 78% of operating PBIT. Upside catalysts include the restocking of Singapore residential inventory, while downside risk includes forex volatility given 66% of its PBIT is derived outside of Singapore. Maintain Add with a higher RNAV-based TP of S$2.40 by CIMB. Share price closed at S$1.930