Brokers’ take: DBS restarts coverage on Frasers Property with ‘buy’ on record-low valuations
Add BT as a preferred source
Michelle Zhu
DBS Group Research reinstated coverage on developer Frasers Property with a “buy” call, noting that the stock is trading at a “remarkably cheap valuation” despite its improving fundamentals.
In the research house’s view, the market is undervaluing the stock, considering its strong track record, global platform and fast-growing hospitality business.
Though DBS’ 12-month target price of S$1.21 for Frasers is lower than the previous target of S$1.70, it implies an upside of more than 50 per cent from current levels. The new target is pegged to a 60 per cent discount to the stock’s revalued net asset value of S$3.02.
“We see deep value for the group, which is trading at 0.3 times price to book, anchored at a historical low. At this level, we believe investors are missing out on a great stock with potential to deliver strong returns in the medium term,” said DBS analysts in a report on Thursday (Sep 14).
Aside from being “deeply undervalued and an attractive privatisation candidate”, the analysts said they see potential upside to dividends, with higher profitability in the coming years.
At the group level, they anticipate a rebound in earnings in FY2024 on the back of higher revenue recognition from projects in Singapore, along with higher returns from the group’s industrial, logistics and commercial properties beyond.
Navigate Asia in
a new global order
Get the insights delivered to your inbox.
Project completions across its industrial and logistics portfolios – paired with a robust outlook for Frasers’ hospitality business – should also contribute to its bottom line, said the analysts.
They highlighted Frasers’ “burgeoning” industrial platform, which has benefited from robust growth amid strong demand for industrial and logistics properties.
Recent project completions in Australia and Europe should underpin steady growth in capital values and profitability for the development segment, they added.
“With close to S$2.9 billion of revenue yet to be recognised across Singapore, Australia and China, the completion of its development projects will also translate to a gradual deleveraging process over time,” said DBS.
Its analysts also noted that while earnings accretion from the group’s hospitality segment’s strategy through management contracts is less than owning the hotel itself, it comes with minimal equity commitment and is return-on-equity enhancing in the medium term.
“Looking ahead, we project revenues per available room (RevPAR) to remain on an uptrend come 2025, with overall projected RevPAR growing by a 13 per cent compound annual growth rate during FY2022-2025.”
Shares of Frasers Property were trading S$0.02 or 2.5 per cent higher at S$0.82 as at the midday break on Friday.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Copyright SPH Media. All rights reserved.
