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Tea with Solace: Frasers Centrepoint Limited (FCL)

Sunday, February 16, 2014

A Peek into Frasers Centrepoint Limited (FCL)

Frasers Cpt (FCL) has been spun off by F&N, the real estate division carved off from its operation business. It was listed on the SGX Mainboard on 9 Jan 14. The stock opened at $1.61, reaching a high of about $1.70 a couple of days later before retreating to the current price of $1.41 to $1.42.

FCL operates as an international real estate company. It owns many properties that we are very familiar with. It has major stakes in two REITs – FCT and FCOT.

Souce: FCL 1Q14 Results Presentation. Click to enlarge.

Financial Highlights

Revenue increased by about 87% and PBIT increased by about 63% Year on Year. The strong set of 1Q14 results showed year on year gains in all segments. Strong overseas development sales were the key driver.

Development PBIT rose by about 121% year on year. It was led by Australia with the completion of One Central Park (CP) and Park Lane Block 5A in Sydney. As for China, around 750 units were sold in 1Q14, but the overall residential market remains cautious in China. In Singapore, Overall prices declined 0.9% q-o-q in 4Q13. Around 15,000 new homes were sold in 2013, 32% lower compared than 2012

Given the increasingly cautious sentiment in the local property market which has been affected by cooling measures, Frasers Centrepoint’s strategy of venturing overseas can put it in a good position for further growth,

There was also an increase in commercial rents and room rates with higher contribution from One@Changi City . Construction of Waterway Point is progressing well, slated to be completed in 2015.

Currently the Net Asset Value per share is $2.15. At current price of about $1.41, it is about 35% discount to its NAV. I am vested at this price

I resisted entering when it was trading at $1.50 or $1.60. Recently, I make a comparison of similar real estate companies listed in Singapore. On average, they are trading at about 0.75x book value. At current price of $1.41, with about 35% discount to NAV, I feel comfortable vested in FCL properties. Valuation is attractive in my opinion.

FCL has a net debt to equity of about 50%, which I am uncomfortable with. Recent media reports suggest that FCL will launch a hospitality trust, which could raise S$600m. Once they spin out the hospitality REIT, they should be able to move some debt off their books. This asset recycling move is beneficial to FCL similar to what OUE and SPH have done in recent times.

This move can fund new acquisitions and allow them to be asset light. This strategy also allows them to earn more REIT management fees and improve its commercial portfolio.

Potential Risks

FCL has a small free float of only about 12%. This does not sit well with large investors. Hopefully, this will change over time. Increasing FCL free float will improve investor participation and narrow the valuation discount. This remains a uncertainty and likely to depend on market forces.

Another potential risks lies in the majority shareholder. In this case, it is Thai boss, Chaoren, holding a direct stake at 76%. It is of utmost important that the Thai towkay's interests are aligned with minority shareholders.

What are the things the management can do to the detriment of minority shareholders? They can set unreasonably high directors remunerations or, worse still, IPT (Interested Person Transaction) which will solely benefit the majority shareholder instead of all shareholders. I believe IPT risk possibility is low but still it is a risk.

As Warren Buffett said, integrity of management is very important. This is an area which I have to pay attention to.


I believe at current valuation, FCL is attractive, trading at about 35% discount to its book value of $2.15. The portfolio is spread across residential, commercial and hospitality properties in markets such as Singapore, China and Australia which reduces the risk of downturn in any particular country dragging down the whole company. It has a good history of increasing its profits and assets. FCL also has a potential catalyst in the form of REIT listings in the near future,

Key risks like free float and management integrity still remains. The financials of FCL look extremely attractive and there is huge potential upside to go but it also holds hidden risk that goes beyond financial statements.

While many people are proclaiming doom for the real estate, my strategy is to invest at attractive valuation and sit tight to wait for events to unfold. I like to stay invested in good counters for longer period of time. All counters are good investments at the correct valuation.

I came across a recent quote from the papers which best explains my strategy in holding this stock.

"We believe that if you don’t believe in holding a share for 10 years, then don’t even think about holding it for three days… Speculators can still get their thrills through other means. But let’s not make the mistake of confusing investing with gambling"

- Mr David Kuo, Chief executive of Motley Fool Singapore.

Some other guest blogs by Solace in ASSI:
1. King Wan Corp. Ltd.
2. Common Sense Investing.
3. Getting ready for investment.


Gary said...

Robinsons will be shifting from Centrepoint and this will affect FCL. Just for information

Solace said...

Hi Gary,

Thx for dropping by.

this is a valid concern. In a earlier news, The management is looking for a suitable time to redevelop Centrepoint and the starhub centre behind it.

I hope that this can provide another catalyst for FCL if it happens.

Solace said...

I made a partial divestment of FCL at $1.70. Entry price at &1.41, this equal to about 20% profit. Decided to take some profit off the table to hold some cash.

Reason for partial divestment is to hold cash while waiting for market correction. In this way, i will be able to deploy cash to solid companies when they present themselves with good margins of safety.

I am still holding to some shares of FCL as I am still positive about the fundamental of this company. Some catalyst in the near term can present opportunity for some upside. I expect to stock to narrow its discount to the NAV at $2.15.

AK71 said...

Hi Solace,

Wow! Made 20% in such a short time! Great call! Congratulations!

I guess the value will be unlocked when the REIT happens. :)

Solace said...

Hi AK,

I devote quite a number of efforts and hours into researching FCL and Kingwan. I am fairly happy with my research and wouldn't dare to guest blog them if I have doubts.

I am glad that they turn out well and a dose of luck certainly play their part here. Things could always go wrong and bloggers who pick the wrong stocks could always end up looking like a fool Lol.

My mum asks why I make partial divestment of FCL so early haha. it does still have the potential to go higher, but I am wary going into the month of May, world cup fever, tapering, Ukraine crisis etc..

Another reason is to hold some cash to be ready to do portfolio rebalancing. Been wanting to cut down my exposure to growth stocks (Capital gain) and to focus more on dividends paying stocks (income)

AK71 said...

Hi Solace,

Indeed, it is all about what gives us a peace of mind. We have to be comfortable in being invested, I always say. We are more likely to keep our cool then and not make rash decisions. :)

I also believe in having a big base of income generating stocks because that gives me a peace of mind.

Solace said...

How FCL share price grows from strength to strength to day high of 1.79 in such a short while is beyond my expectation.

There is really no accounting of Market behaviour sometimes. I was fortunate that I didn't divest 100% few weeks back.

AK71 said...

Hi Solace,

The discount to its NAV has indeed narrowed. It seems that Mr. Market is expecting something good to happen! :D

AK71 said...

Frasers Hospitality Trust (FHT) will have a portfolio of 12 properties -- including the InterContinental Singapore and Westin Kuala Lumpur hotels -- when it lists on the Singapore Exchange later this year.

This is according to Frasers Centrepoint, which said it will hold an extraordinary general meeting on May 28 to seek shareholders' approval for the injection of six serviced residences into FHT.

AK71 said...

"Frasers Centrepoint Ltd. (FCL) offered to buy Australian developer Australand Property Group (ALZ) for A$2.6 billion ($2.4 billion) in the Singapore real-estate company’s biggest proposed acquisition, trumping a bid by Stockland.

"Frasers offered A$4.48 per share, Sydney-based Australand said today in a regulatory filing, compared with Stockland’s A$4.43 all-share bid. Shares of Australand, whose board said it intends to recommend the offer in the absence of a superior proposal, posted their biggest gain since December 2012 in Sydney. Frasers shares had the biggest drop in four months in Singapore."


"FCL’s acquisition of Australand transformational but dilutive"


Solace said...

Adding on to the news on "FCL bid for Australand Property Group"

I have concerns that FCL is over stretching itself financially with bid for the Aussie-listed property group.

Net debt gearing can be expected to double and there is also potential worry there will be an equity fund raising exercise to help foot the bill for the purchase if it materialises.

Solace has chosen to make at full divestment few days ago at $1.85.

AK71 said...

Hi Solace,

You have demonstrated to us when to buy and when to sell using your experience with FCL. Very sound decisions too.

Of course, you have made some handsome gains to boot. Congratulations! :D

Solace said...

Hi Ak,


This deal raised my eyebrows when it is about 20% more than what capitaLand received when it sold its stake in Australand not too long ago.

I wonder is it because CapitaLand has not performed its due diligent? It should just called FCL to check if they are interested in Australand, hahaha

AK71 said...

Hi Solace,

Hahaha... :D

Well, I guess only time will tell if FCL is doing the right thing paying a premium here. :)

foolish chameleon said...

after 2.5years...
is FCL still considered a better investment than its children assets ie FLT?
i am still learning about REITS.

Solace said...

If you are only interested in dividend yield, you might want to pay more attention to FLT instead.

FCL is a property developer, FLT is a REIT. While FCL still pay dividends of about 5%, it am not too sure if it will be consistent in the years going forward as property developer can have lumpy earning in different years.

If you like FCL as a company for growth and dividend, you might want to study deeper into its growth driver, business model and finance ratio.

I last compared the Debt to Asset ratio of all the property counter listed in SGX. FCL is among the most highly geared. I also compared the discount to NAV of the various property counter. FCL also does not offer the most discount.

Since FCL is among the most highly geared, the price to NAV is also not the widest, i decide not to invest in it since. i chose to move my funds to OUE about 1 - 1.5 years ago when OUE was between $1.50 to $1.60.

Does not meant FCL is not a bad counter? not necessary. There are many others who think highly of FCL business model and management capability.

Knowing yourself and doing your own due diligent is the most important.

foolish chameleon said...

thanks solace for your valuable input!

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