April 15, 2019

Frasers Property Ltd (FPL) is one of Singapore’s main real estate companies with assets exceeding S$20bn. The group has four key core businesses focused on residential, commercial, hospitality and industrial sectors spanning 77 cities across Asia, Australasia, Europe and the Middle East. We maintain our BUY rating on Frasers Property Ltd (FPL) and raised our TP to S$2.30 from S$1.98, due to its limited exposure to Singapore residential property and its strong recurring income profile as a landlord in the commercial space. FPL’s valuation remains attractive at 0.7x P/NAV and its dividend yield is the highest among developers at 5%.

With the rise of its REITs share prices, we see a window of opportunity for the group to capitalise on this to grow their REITs AUM. One strategy will be to recycle mature assets (retail, hospitality, office and industrial properties) into its listed REITs to grow their AUM and at that same time, re-allocate funds towards higher return investments. Asset monetisation, improved property sales, and improving free float and liquidity.

Propelling Frasers to second largest in Singapore retail with the acquisition of PGIM Fund. In a few surprise moves, FPL and FCT jointly acquired a controlling stake of 66.6% in PGIM Real Estate AsiaRetail Fund (PGIM Fund). We believe this is positive with the strategic benefit outweighing the financial benefit. With PGIM Fund’s Singapore assets, the group will become the second largest in Singapore retail, a strong contender only to a few. The potential Singapore pipeline available for FCT not only could bulk up FCT but could see FCT demanding for a higher premium to NAV (CMT at 24% premium vs FCT at 10%). The stock has a low free float with 87.9% held by major shareholders TCC Group and Thai Beverage, thus leading to low liquidity.

Dependent on the outlook of Australia’s real estate market, currency outlook.
The group derives an estimated 30% of PBIT from Australia which is dependent on the real estate market there, and whose returns could be impacted by the weakening AUD/SGD exchange rate. We maintain our BUY rating and raised our TP to S$2.30 to factor in the PGIM acquisition and higher valuation from its commercial and hospitality assets. Our TP is based on 35% discount to RNAV.  BUY by DBS Research.  Share price closed at S$1.92.