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Latest Earnings From Frasers Centrepoint Ltd: Strategy Bearing Fruits

Frasers Centrepoint Ltd (SGX: TQ5) listed on Singapore’s stock market back in January 2014. This was after it got spun off from Fraser and Neave Limited (SGX: F99).

As of its closing price of S$1.62 yesterday, Frasers Centrepoint has a market capitalization of S$4.7 billion.

The company’s business revolves around real estate with it developing properties for sale and owning properties for long-term investments. As part of its property investments, Frasers Centrepoint has three real estate investment trusts (REITs) under its wings: Frasers Centrepoint Trust (SGX: J69U), Frasers Commercial Trust (SGX: ND8U) and Frasers Hospitality Trust (SGX: ACV).

Frasers Centrepoint had released its fiscal first quarter earnings (for the three months ended 31 December 2015) yesterday evening. Let’s dig into it to see how the company has performed and if there are any important takeaways.

Revenue and profit

Revenue for the quarter came in at S$671.6 million, down 37.4% compared to a year ago.

The reason stated for this decrease was the lower completions of development properties compared to the prior year. This was however, partially offset by a new income stream stemming from the acquisition of the Malmaison Hotel du Vin (MHDV) Group in UK in the middle of 2015.

Profit for the period (not including fair value changes and exceptional items) came in at S$90.3 million, which was 38% lower compared to the figure of S$145.6 million seen in the prior year.

Fair value changes for the quarter came in at S$9.7 million. Along with exceptional items of a negative S$1.3 million, these resulted in a total of S$98.7 million in profit attributable to shareholders, down 47% year-on-year.

Fair value gains were booked largely due to the completion of Waterway Point which obtained its Temporary Occupation Permit (TOP) in December 2015.

Business highlights and a future outlook

Frasers Centrepoint’s chief executive, Lim Ee Seng, mentioned in the earnings release that the company’s strategy to start growing recurring income a few years back to mitigate lumpy property-development income is bearing fruits.

According to Lim, Frasers Centrepoint’s “growing recurring income streams supported [the company’s] profitability this quarter, and proved especially vital in the absence of revenue recognition from overseas development property completions, coupled with the tapering off of contribution from Singapore development properties.”

During the reporting quarter, Frasers Centrepoint had been busy with acquisitions, making two in total. One was for a 29.5% stake in Golden Land Property Development Public Company Limited, a property developer in Thailand, for approximately S$196 million.

The other was the acquisition of four hotels using the MHDV Group as a vehicle. This acquisition had cost Frasers Centrepoint approximately S$76 million.

Looking ahead, the company has a 40% stake in a joint-venture which was awarded a land parcel in Siglap Road in January 2016 for S$624 million; this is for a condominium project. The company also intends to launch an executive condominium project in Sembawang in the first half of 2016. Both of these should support development income in future quarters.

On the commercial front, the company commenced operations at its recently completed Waterway Point retail mall. This should further help to strengthen Frasers Centrepoint’s recurring income streams.

Financial strength

As at 31 December 2015, the real estate outfit’s net debt to equity ratio stands at 83.8%, a slight increase from the 83.4% seen a year ago. While improvements have been made in terms of the percentage of borrowings with fixed rates (up from 55% to 78%), the cost of debt had also creeped up from 3.1% to 3.3%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Esjay doesn't own shares in any companies mentioned.