SINGAPORE (May 14): DBS analysts Rachel Tan and Derek Tan, as well as CGS-CIMB analyst Lock Mun Yee are maintaining their “buy” call on Frasers Property, but with a reduced target price.

The analysts from both brokerages now value FPL at $1.70. DBS previously rated FPL at $2.05 while CGS-CIMB’s previous target price was $1.76.

Both brokerages cited the company’s “higher gearing, dividend cut, and potential headwinds caused by Covid-19”, and lower-than-expected earnings for 2Q20 and 1HFY20 respectively, as reasons for lowering their target prices.

On Wednesday, FPL reported a 38.1% y-o-y drop in earnings to $74.5 million for 2Q20, due to a weaker hospitality business as well as lower contributions from associates.

See: Frasers Property CEO warns 'business as usual' is not an option as 2Q earnings drop

In a Wednesday report, CGS-CIMB’s Lock says the company’s 1HFY20 core net profit of $233.8 million, equivalent to 38% of her FY20 forecast, was “below expectations”, 

Looking ahead, Lock anticipates the company’s Singapore earnings growth to remain “subdued” with an “estimated remaining $100 million worth of unrecognised residential revenue as at end 2Q”, on top of a challenging retail operating environment.

She has also cut her estimated earnings per share for FY20 by 20.2% on “lower hospitality contributions”. However, she is raising her FY21-22F estimates by 7.8-15.1% as she expects FPL to push back “recognition of residential contributions”.

Lock’s target price of $1.70 is pegged at a 45% discount to FPL’s revalued net asset value of $3.09. 

Nevertheless, with FPL actively deploying capital in a more efficient manner, there’s “upside risk” to her estimates. On the other hand, downside risks will come from a weaker economic outlook and thereby slowing down the recycling pace of its capita.

In a Thursday report, DBS’s analysts say the company’s half-year results remain in-line with their full-year estimates despite the relatively weaker set of results.

While they remained concerned on FPL’s near-term share price, they remain “positive” on its prospects for FY21 as the company “could extract value from its recent investment in PGIM Real Estate Asia Retail Fund (PGIM ARF), as well as monetise assets to potentially lower its gearing when the opportunity arises”.

“Our TP is based on a 50% discount to RNAV,” they say, while identifying the company’s risks as being dependent on the outlook of the Australian real estate market and currency, and impacted returns by the weakening AUD/SGD exchange rate.

As at 4.04pm, shares in FPL are changing hands at $1.16, down 2.5%.