SINGAPORE (Aug 13): Frasers Property last week announced that its 3Q18 earnings increased 8.6% y-o-y to $198.1 million.

Revenue dropped by 2.7% y-o-y to $1.36 billion mainly caused by slower sales from Australia, hospitality, Europe and rest of Asia segments, partly offset by higher Singapore contributions.

See: Frasers Property reports 8.6% higher 3Q earnings of $198 mil

Following the results announcement, DBS is reiterating its “buy” recommendation on Frasers Property with an increased fair value of $1.98.

In a Monday report, analyst Rachel Tan says, “We maintain our ‘buy’ rating on Frasers Property despite the government implementing tighter measures on the property sector as its valuation remains attractive at 0.7x P/NAV and its dividend yield remains the highest among developers at [about] 5%.”

The analyst believes that the stock is a good defensive play within the sector as it has low exposure to the Singapore residential property market.

The group’s only land bank in Singapore, Jiak Kim land site is expected to be launched in 1H19 and expects to yield about 500 residential units.

While the management also acknowledges that there are potential headwinds in the Singapore and Australia property markets, it believes that its products are unique and will have its own niche given its track record of delivering good quality. It also remains positive as it builds recurring income and optimise its balance sheet via asset recycling.

Similarly, CGS-CIMB is maintaining its “add” call on Frasers Property with a target price of $2.02.

In Australia, the group has handed over 611 residential units in 3Q18 and is on track to deliver 3,000 units for FY18.

However, due to challenging market conditions, the group has lowered its launch target to 600 units in 4Q compared to the original 1,250 units.

Nonetheless, earnings remain visible with $1.9 billion of unrecognised residential revenue at end-3Q18.

In Europe, higher earnings with maiden contributions from the industrial, logistics and business park properties in Germany, the Netherlands and UK, as well as improved performance of Golden Land and reclassification of TICON as a subsidiary, helped partly offset weaker China contributions due to the timing of project completions.

In a Friday report, analyst Lock Mun Yee says, “The hospitality division continues to be challenged by lower contributions from Malmaison Hotel du Vin’s F&B operations as well as pre-opening expenses at Frasers Suites Dalian as well as higher 3Q17 base due to unrealised gains from cross-currency swaps.”

Nonetheless, the group’s core operating hospitality metrics of the non-REIT portfolio continued to show positive performance, with high occupancy rate of 92.9% and RevPAR climbing 16% y-o-y to $162 in 3Q18.

As at 11.05am, shares in Frasers Property are trading 4 cents lower at $1.67 or 0.5 times FY18 book with a dividend yield of 5.06%.