Selling the golden goose or eggs?
Frasers Property Limited (-4.0%) announced a series of announcements over past few days. Firstly, regarding their response to a wall street journal (“WSJ”) article that sponsor TCC assets is potentially undertaking a strategic review of their stake in FPL, the group announced that they are “The Company has not been informed, and is not aware of, any discussions in relation to the Proposed Transaction”. The group also announced key management changes with the Mr. Chia Khong Shoong (Chief Corporate Officer) and Ms. Lorraine Seow (CEO, Frasers Property China) will be leaving to pursue their own personal interests. The group have also tapped on their strong bench strength with Mr. Anthony Byod stepping into a newly created Group Operating Officer role.
Our thoughts
These announcements will likely provide some clarity for FPL for investors. While the WSJ article have certainly created some buzz around the stock, our key take-away is that FPL is unjustifiably undervalued at 0.3x and if any, avenues to unlock value to drive a re-rating in share price will be of focus to the group. While FPL have gained some spotlight in recent times, our understanding through meetings with various institutional investors’ acknowledging its deep discount to book but also find it hard to take a meaningful position given its illiquidity, as the stock is trading at <1m trading volume due to the sponsor (TCC assets and Thai Beverage Ltd) collectively owning c.87% of the company
Nevertheless, we foresee a busy year ahead for FPL, with possible asset divestment activities to its REITs to maintain a capital efficient balance sheet to be of focus in the immediate term. These corporate actions, once executed on, could potentially close the P/B and P/RNAV gap for the stock. We maintain BUY, TP S$1.20 (c.+26% upside) based on our assumed 60% discount to its RNAV.
Potential M&A activities for the group (DBS view)
| Strategic moves | Held | Potential Value (S$’bn) | Impact and likelihood | Potential buyers |
| Sale of stake in Northpoint City 2 | 50% FPL and 50% TCC | S$1.1billion (100% stake) | Medium impact, high chance | FCT . |
| Sale of 50% stake in Frasers Tower | 50% held by FPL | S$ 1 billion (50% stake) | Medium impact, high chance | 3rd parties |
| Sale of industrial properties | FPL (various regions) | S$ 1 billion ( various entities) | Medium impact, high chance | FLCT |
| Sale of stake in hotel business | Held by FPL | S$2.3bn or S$2.8 bn including FHT | Longer term, low probability | 3rd parties |
