Dear all

The past few weeks have been extremely busy from MSCI index rebalancing (where there are lots of opportunities to capitalise on); to 1-1 meetings and a site visit in Myanmar. This is why I have not been posting posts on my Linkedin (click HERE for my Linkedin) and only one article on my blog since 6 May 2024.  While doing my usual stock screening of SGX listed stocks, I found out that Frasers Property Limited (FPL) has the lowest valuation at 0.3x P/BV, while being one of the largest market capitalisation stocks listed on SGX.

FPL closed at $0.800 on 14 Jun 2024.

Why is FPL interesting? Let’s take a closer look.

Firstly, let’s see what does FPL do…

FPL is a multinational investor-developer-manager of real estate products and services across the property value chain. The Group is listed on the Main Board of the Singapore Exchange Securities Trading Limited in 2014 and headquartered in Singapore.

FPL’s multinational businesses operate across five asset classes, namely, commercial & business parks, hospitality, industrial & logistics, residential and retail. The Group has businesses in Southeast Asia, Australia, the EU, the UK and China, and its well-established hospitality business owns and/or operates serviced apartments and hotels in over 20 countries and more than 70 cities across Asia, Australia, Europe, the Middle East and Africa.

Fig 1: Overview of FPL

Source: Company

Possible investment merits

a) Analysts are generally positive with an average target price $1.22

Based on Figure 2 below, if I average the target prices from CGSI, DBS and JP Morgan, this works out to be $1.22. Inclusive of an estimated FY24F dividend per share of $0.045, this works to a total potential return of 58% should the consensus be right.

Fig 2: Average analyst target price $1.22; total potential upside is around 58%!

Source: Bloomberg 14 Jun 24

b) Extremely attractive valuations

Based on Bloomberg, FPL trades at undemanding levels (should I say rock bottom low levels?) of 0.29x FY24F P/BV and 5.6% respectively. If I compare FPL against other property related companies, FPL has the lowest valuation by P/BV (at 0.29x FY24F P/BV) and the highest FY24F dividend yield at around 5.7%. (See Table 1 for more information) FPL’s NAV / share is around $2.44.

In short, regardless whether FPL is stacked against its peers or on a stand-alone basis, it is difficult to deny that its valuations are attractive.

Table 1: Comparison of FPL against its peers

Source: Bloomberg 14 Jun 24

c) Chart wise: FPL has been trading sideways amid improving indicators 

Since 15 Apr, FPL has been trading in a tight trading range $0.785 – 0.810. Except for OBV, indicators such as MFI, MACD and RSI have been forming higher lows. Although bullish divergence in indicators is not a good market timing tool, it indicates (to some extent) that the probability of a sustained downside break below $0.785 with volume is lower as compared to an upside break.

A sustained upside break above $0.810 with volume points to an eventual technical measured target $0.835. Conversely, a sustained downside break below $0.785 with volume points to an eventual technical measured target $0.760. FPL hit an all-time low level of around $0.750 – 0.760 in Aug, Sep, Oct and Nov 2023.

Chart 1: FPL trades in a tight trading range $0.785 – 0.810 for the past two months!

Source: InvestingNote 14 Jun 24

d) Unbilled revenue of S$2.3b lends earnings visibility

Based on 1HFY24 results, FPL has S$2.3bn of unbilled residential revenue at end-1HFY24, mainly in Australia, China and Singapore. Readers can refer to FPL’s detailed 1HFY24 power point slides HERE.

e) Asset divestments

Based on 1HFY24 results, FPL has unlocked value by divesting assets worth S$1.1b of properties via sale to its REITs and third parties. In fact, unlocking value through ongoing capital recycling and capital efficient structures is one of their 3 main focus areas. The two other main focus areas are increasing development exposure and strengthening recurring income streams.

f) Valuations of FPL’s listed entities > FPL’s market cap!

Based on information which I obtained from sources such as CGSI report; FPL; The Edge; Yahoo Finance, FPL has stakes in Frasers Centerpoint Trust; Frasers Log; Frasers Hospitality and Frasers Property Thailand, worth an aggregate amount of S$3.6b. FPL’s current market capitalisation is around S$3.1b. Thus, the value of its listed entities is already more than FPL. As DBS Research report aptly puts it, there seems to be zero value ascribed to FPL’s

• Growing hospitality business;
• Global industrial & logistics sourcing and development platform;
• Track record as a developer of residential homes in Australia and Singapore.

Important noteworthy risks

Besides the usual business and macro risks such as high for longer interest rate environment; weaker macro-outlook and reduced demand for its logistics and industrial space, some other risks may be:

a) Credit metrics have deteriorated

It is noteworthy that FPL’s credit metrics have weakened. FPL’s net debt to equity ratio has risen from 0.76x as at 30 Sep 23 to 0.80x as at 31 Mar 24. FPL’s net interest coverage ratio has also weakened from 3.5x in 1HFY23 to 2.3x in 1HFY24. In addition, net debt to equity ratio is likely to increase with the complete redemption of its SGD600mn perpetual securities in Apr 24.

b) Extremely Illiquid

Average 30-day volume is around 96K shares. Hence this is an extremely illiquid stock where it is difficult to enter or exit easily.

c) Limited analyst coverage

Although FPL’s market cap is around $3.1b, its limited free float and lack of trading liquidity may have resulted in less analyst coverage. Notwithstanding this, under-researched stocks may arguably have higher potential return.

d) Potential value trap?

Based on Bloomberg, FPL has traded at an average P/BV of 0.3x for the past two years. Thus, although FPL is trading at extremely low valuations, such valuations may remain low for an extended period of time, unless FPL can improve its credit metrics; undertake capital recycling and strengthens its recurring income streams.

e) Chart reading is subjective and stock can get lower

It is important to note that chart reading is subjective especially for stocks with low trading liquidity.

Readers are encouraged to refer to FPL’s analyst reports HERE for more information.

Conclusion

In summary, FPL seems to be trading at attractive valuations at 0.3x FY24F P/BV, supported by 5.7% FY24F dividend yield. It also has S$2.3bn of unbilled residential revenue at end-1HFY24 which provides earnings visibility. Nevertheless, the deterioration in its credit metrics and lack of liquidity are some of the potential risks which readers need to be cognizant of.

Readers are encouraged to refer to FPL’s analyst reports HERE for more information.

Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at https://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider sending an email to my email address

ernestlim15@gmail.com

Readers can refer to my LinkedIn HERE to see my activities and which companies I have met on a 1-1 basis.

P.S: I am vested in FPL.

Disclaimer

Please refer to the disclaimer HERE