CGS International and DBS Group Research have kept their respective positive calls on Frasers Property TQ5 , following lower-than-expected 1HFY2024 earnings, no thanks to fair value losses booked for its properties in UK.
For the six months ended March, the company's revenue dropped by 20.4% y-o-y to S$1.55 billion. Earnings was down 81.8% y-o-y to $36 million. Besides the fair value losses, Frasers Property incurred higher financing costs too.
Despite the lower earnings, DBS Group Research expects a rebound in the second half of the year, driven by higher revenue recognition of developments in Singapore, China, and Australia, where some $2.3 billion in presales have been booked.
Frasers Property is also seen to enjoy steady returns from its industrial, logistics, and commercial properties in Europe, UK, Australia, and ASEAN.
Further lift can be expected as well from its hospitality business, state DBS analysts Derek Tan, Rachel Tan and Tabitha Foo in their May 14 note, where they kept their "buy" call and $1.20 target price, which is pegged to a 60% discount of its RNAV.
The analysts observe that Frasers Property, as part of its active capital management, is continuously recycling assets to its listed REITs, with $1.1 billion divested in 1HFY2024.
"We believe its listed REITs can benefit from having a visible inorganic pipeline," they say, adding that Frasers Property is trading at a record-low valuation of just 0.3 times book value.
"Frasers Property is deeply undervalued and an attractive privatisation candidate. There may be an upside to dividends with higher profitability in the coming years," the analysts say.
In her May 15 note, Lock Mun Yee of CGS International is somewhat more bullish, as she kept her "add" call and $1.41 target price for this counter.
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Unbilled residential revenue of $2.3 billion provides earnings visibility, says Lock, while the other key business, industrial and logistics, is supporting the growth of the recurring income stream.
Demand is coming from the tenants in the electric vehicle and logistics industries, according to the management.
Lock has kept her FY2024 to FY2026 earnings as well as her RNAV estimate of $2.56. Her target price of $1.41 is a 45% discount to the RNAV.
Upside catalysts can possibly come from active capital deployment and improvement in its free float and trading liquidity.
On the other hand, downside risks include slower value-unlocking activities due to the weaker macro outlook, and dampened demand for its logistics and industrial space which could moderate its rental income growth.
Frasers Property shares changed hands at 79 cents as at 2.36 pm on May 15, down 1.88% for the day and down 12.78% year to date.
