Frasers Centrepoint Ltd’s Latest Earnings: “Tepid Growth” Ahead

Last Friday, Frasers Centrepoint Ltd (SGX: TQ5) released its third-quarter earnings for its fiscal year ending 30 September 2016. The reporting period was from 1 April 2016 to 30 June 2016.

As a quick background, Frasers Centrepoint is a real estate developer and investor. Its real estate interests span a wide range of sectors, including residential, commercial, retail, industrial, and hospitality. It has businesses in Asia, Australia, and Europe.

With that, let’s dig into the company’s earnings.

Financial highlights

The following are some of Frasers Centrepoint’s latest financial numbers:

  • Revenue for the reporting quarter came in at S$682.1 million, down by 32.5% year–on-year.
  • Profit attributable to shareholders had a smaller fall, declining by 6.9% from S$165.4 million a year ago to S$154.0 million.
  • Consequently, earnings per share (EPS) dropped 7% from 5.71 cents in the second-quarter of 2015 to 5.31 cents.
  • Frasers Centrepoint ended the reporting quarter with a net asset value (NAV) of S$2.19, down slightly from the S$2.20 seen a year ago.
  • Free cash flow for the reporting quarter was a positive S$164.4 million (operating cash flow of S$181.4 million and capital expenditure of S$17 million). This was a big improvement from the negative free cash flow of S$332 million recorded in the second-quarter of 2015 (Operating cash flow of a negative S$320.4 million and capital expenditure of S$11.6 million)
  • The company’s cash and equivalents stood at S$1.55 billion as of 30 June 2016 while total debt was S$9.66 billion. This gives rise to a net debt position of S$8.11 billion. This was an improvement from a year ago when the net debt position was S$9.35 billion (cash and equivalents stood at S$1.35 billion, total debt came in at S$10.70 billion).

Business highlights

Frasers Centrepoint has a few main business segments, namely, Commercial Properties, Development Properties, Hospitality, and Frasers Property Australia.

Frasers Centrepoint’s decrease in revenue and profit was primarily due to lower contributions from its Development Properties segment (revenue fell by 69% and profit by 70%). The segment’s development portfolio in Singapore, Australia and China had lower profits, but these declines were partially mitigated by recognition of profits from the completion of the Twin Fountains executive condominium project.

Lim Ee Seng, the chief executive of Frasers Centrepoint, also shared a few words about the company’s reporting quarter in the earnings release:

“This quarter’s results continued to attest to the importance of FCL’s drive to achieve sustainable earnings by growing income from recurring as well as overseas sources.

Amid the tapering off of contributions from Singapore development projects, coupled with timing differences in completions of overseas projects, the role of our recurring income base in providing stability and mitigating the impact of lumpy completion timelines has been clearly demonstrated.

We expect stronger contribution from development income next quarter as several projects in Australia and China are due to be completed.

On the capital management front, the listing of our fourth sponsored REIT, FLT, has lowered FCL’s net debt to equity to 70.8%, providing the Group with enhanced financial flexibility.”

The road ahead

Frasers Centrepoint does not expect the road ahead to be all sunshine and rainbows. It said (emphasis is mine):

“The Group expects a tepid growth environment going forward and will continue to grow its business and asset portfolio in a prudent manner across geographies and property segments. We will also focus on optimizing capital productivity and strengthening the income base through our REIT platform.

In Singapore, the Group will selectively tender for sites to replenish its landbank. In Australia, the Group will leverage the FPA platform and grow the Australian business. As for China, the Group will continue to look at opportunities in Shanghai, Suzhou and Chengdu and explore opportunities in the neighbouring cities.

The Group will also seek opportunities to unlock value in its portfolio via asset enhancement or repositioning efforts, as well as injection of stabilised assets into our REITs.”

The company’s shares closed at a price of S$1.53 each last Friday evening, representing a price to book value of 0.70.

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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 does not own shares in any companies mentioned.