CGS-CIMB, DBS maintain positive view on Frasers Property despite lower FY2023

Given its record low valuations, Frasers Property is deeply undervalued and an attractive privatisation candidate.

Analysts from CGS-CIMB and DBS Group Research have maintained their "add" or "buy" calls on Frasers Property Tq5 despite a 2HFY2023 net loss of $74 million, no thanks to fair value losses of $441.8 million.

Specifically, the company booked the losses for its UK commercial properties and also its Australia-based industrial and logistics assets, no thanks to higher cap rates amid an environment of higher interest rates.

The fair losses have brought its full-year earnings for the year ended Sept 30 to $123.2 million, down 81.3% from the preceding FY2022's $928.3 million. Revenue in the same period was up 1.8% y-o-y to $3.95 billion.

Despite the lower earnings, Frasers Property plans to pay a heftier dividend of 4.5 cents, representing a payout ratio of 50%. For FY2022, it paid just 3 cents.

A team of DBS analysts, Derek Tan, Rachel Tan and Tabitha Foo, in keeping their "buy" call and $1.20 target price - pegged to a 60% discount to its RNAV of $3 - describe Frasers Property as an "unappreciated" developer.

They point out that Frasers Property is trading at a "remarkably cheap" valuation. For context, the value of its stakes in the various listed REITs already exceeds the current market cap of $3.1 billion.

Given its record low valuations of 0.3x P/B and 0.2x P/RNAV, it is deeply undervalued and an attractive privatisation candidate.

"The market is assigning zero value to its solid track record as a developer of residential homes in Singapore and Australia, global industrial & logistics sourcing and development platform, and fast-growing hospitality business," the DBS analysts note.

The DBS analysts expect Frasers Property to enjoy a rebound in earnings for the coming FY2024, thanks to higher revenue recognition from its development projects in Singapore, China, and Australia, with presales of around $2.9 billion already made.

The company is expected to see growth from its industrial, logistics, and commercial properties in Europe, UK, Australia, and Asean.

CGS-CIMB Lock Mun Yee, who has kept her "add" call on the stock, notes that Frasers Property is developing 17 new properties with a total space of 609,000 sqm in Australia and Europe, with an additional landbank of 2.4 million sqm, giving more room for further growth down the road.

Lock is also cheered by the improving hospitality portfolio, where RevPAR in Asia Pacific was up 60.5% y-o-y in FY2023 while Europe was up by a lower magnitude of 6.9%. Further growth is seen with recent acquisition of two premium rental apartments in Shenzhen and Osaka.

While Lock has trimmed her earnings estimates for the coming FY2024 and FY2025 to reflect changes in the completion dates of some residential projects in Australia, she has kept her $1.41 target price - pegged to a 45% discount off the RNAV of $2.56.

Both brokerages' analysts agree that there's a positive point in the form of active asset recycling, selling assets into the listed REITs.

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