Frasers Property (formerly: Frasers Cpt (FCL))

[piggo]

Urm... don't quite understand, in this case they are the REIT managers... so the perceived "high" management fee should be a bonus. Also FCL have no record of capital raising so far in its short history... REITs =/= Owner/Manager model. Regardless, based on scale, location, capabilities etc. all of them are incomparable with Wing Tai.

Not sure where the 7.6b of "net debt" came from, but based on latest results, their cash ratio of 0.63 and current ratio of 2.02 reflects a relatively healthy balance sheet. Their cost of debt of around 3.1% which is also quite low... their issue of preference shares is a 10 years thingy i.e rates are locked in for 10 years, rising interest rate environment or not and this is an ongoing process; they have been converting their floating rate debt to long term fixed rate.

[Scg8866t]

Urm... don't quite understand, in this case they are the REIT managers... so the perceived "high" management fee should be a bonus. Also FCL have no record of capital raising so far in its short history... REITs =/= Owner/Manager model. Regardless, based on scale, location, capabilities etc. all of them are incomparable with Wing Tai.

Not sure where the 7.6b of "net debt" came from, but based on latest results, their cash ratio of 0.63 and current ratio of 2.02 reflects a relatively healthy balance sheet. Their cost of debt  of around 3.1% which is also quite low... their issue of preference shares is a 10 years thingy i.e rates are locked in for 10 years, rising interest rate environment or not  and this is an ongoing process; they have been converting their floating rate debt to long term fixed rate.

erm, simple calcuation from latest balance sheet can show the 7.6bil in net debt. Cash and bank deposit minus total borrowings. If you minus off the perps and non control interest, their total equity is only 6.6bil(we can make it worse by adding the 1.4 bil in perp to their borrowings to make it 8.6bil in net debt vs 6.6bil in shareholders equity).

FCL have share ownership of all the reits that they issued, as I have said, I am not a fan of reits and prefer developers who have not or choose not to spin off. I do agree that the size of FCL(4.3bil market cap) is bigger than WingTai(1.2bil), but in terms of net debt to equity and discount to books, Wing tai and wheelock are far superior than FCL in terms of value, also more preferred for value investors.

My view.

[piggo]

Haha... ok. That's a pretty extreme way of calculating "net debt". Going by your definition, if a company is so flushed with cash that (cash and bank deposits - debt) is positive... either (1) there is nothing worth investing in their industry (2) management is not making good use of resources. Hardly a positive thing! Then again whether having piles of cash lying around is a reflection of value is very subjective.

[Scg8866t]

Haha... ok. That's a pretty extreme way of calculating "net debt". Going by your definition, if a company is so flushed with cash that (cash and bank deposits  - debt) is positive... either (1) there is nothing worth investing in their industry (2) management is not making good use of resources. Hardly a positive thing! Then again whether having piles of cash lying around is a reflection of value is very subjective.

Hehe, I think differently. In this current times, I prefer companys with huge net cash positions or those that are transitioning to, than those that are drowning in debt. net cash rich companies are the ones that can take full advantage in terms of capex and acquitions going forward(more options)

Value investing to me means buying companies with the most potential value and to me that relates to property synergies, cash on hand with as little debt as possible.

[piggo]

If a company have piles of cash on hand, it'll be better for them to return it to their shareholders (e.g Apple or the more VB related St******). If they can't derive better returns from cash, it doesn't mean their shareholders can't... A company of sufficient scale does not need net cash to take advantage of acquisitions or capex. That can be done via revolving credit or one of the multiple ways to get money... Access to capital markets is one of the main reasons why companies are listed in the first place!

Anyway think I am digressing, I would strongly disagree that FCL is "drowning" in debt. The purpose of liquidity ratios is simply to gauge whether the debt burden is sustainable. Apart from the very healthy current ratio of 2.02 (i.e their assets can pay down their debts... twice) their interest coverage of ~4.5 (i.e 1 year's profit can cover 4.5 years of interests payments) is also very manageable. To support their dividends, earnings are also relatively stable (or ~800m) vs Wing Tai's steadily decreasing net profits since 2013.

In terms of managing the business, FCL have been steadily having profit margins of >20% , with ROA/ROE of >5% the past couple of years... Meanwhile Wing Tai's margins are languishing below 10%, with near <1% ROE.... Personally I feel the market isn't stupid, there are plenty of good reasons why FCL trades at a 34% discount to book, while Wing Tai trades at 60% discount I would need balls of steel to invest in Wing Tai especially considering their massive (6%) exposure to Malaysia (2nd most corrupt and top loser in forex) and Singapore (no end in sight to cooling measures).

[Scg8866t]

If a company have piles of cash on hand, it'll be better for them to return it to their shareholders (e.g Apple or the more VB related St******). If they can't derive better returns from cash, it doesn't mean their shareholders can't... A company of sufficient scale does not need net cash to take advantage of acquisitions or capex. That can be done via revolving credit or one of the multiple ways to get money... Access to capital markets is one of the main reasons why companies are listed in the first place!

Anyway think I am digressing, I would strongly disagree that FCL is "drowning" in debt. The purpose of liquidity ratios is simply to gauge whether the debt burden is sustainable. Apart from the very healthy current ratio of 2.02 (i.e their assets can pay down their debts... twice) their interest coverage of ~4.5 (i.e 1 year's profit can cover 4.5 years of interests payments) is also very manageable. To support their dividends, earnings are also relatively stable (or ~800m) vs Wing Tai's steadily decreasing net profits since 2013.

In terms of managing the business, FCL have been steadily having profit margins of >20% , with ROA/ROE of >5% the past couple of years... Meanwhile Wing Tai's margins are languishing below 10%, with near <1% ROE....  Personally I feel the market isn't stupid, there are plenty of good reasons why FCL trades at a 34% discount to book, while Wing Tai trades at 60% discount I would need balls of steel to invest in Wing Tai especially considering their massive (6%) exposure to Malaysia (2nd most corrupt and top loser in forex) and Singapore (no end in sight to cooling measures).

Current ratio only looks at current liabilities and asset not an accurate picture. 8.6bil net debt vs 6.6 bil in shareholders equity is pretty debt heavy. FCl current gross profit margin is only 30%, Wingtai is consistenly at 38%. Also another point to note Wing tai current ratio is 14.8, cash ratio 6.36.

With the successful sale of Tembusu and their disposal of nouvel subsidary to cdl they are transitioning nicely to net cash soon in my view and moving away from the Singapore developemental market(No more land bank here). I do agree that their earnings are choppy due to the nature of their business but I see more value in stocks like Wing Tai and Wheelock mainly due to their current fundamental valuation and their potential privatisation scenario. 

Why do you need balls of steel to invest in a 0.39x book company with very little net debt? Compared to FCL which is at 1.3x net debt to equity and trading at 0.66x books.

Ps: Regarding giving cash back to shareholders thats precisely the point. Many isetan shareholders for example are holding on to the shares for free now after receiving their $1.80 in special dividend during the tax credit era. Another company with huge cash balance and zero debt.

[TUBInvesting]

Hi,

Back with another post on the comparison of Fraser Cpt with 7 other developers. This time I even compare with Wheelock and Amara.

Hm... this post is not to justify who's right and who's wrong, rather for discussion as the previous view has all be quite insightful for me.

http://tubinvesting.blogspot.sg/2016/11/...-best.html

I did review on its latest financials, FCL did improve from the last quarter.

For the year moving forward, REITs will be affected (most probably) and their earnings may fall. This will definitely affect their repayment of debt.

Will keep an eye on the leverage and continues to hold on to it.

<vested>

Interest rate hike not only REIT be affected. Property counter will also get it.

But the higher rate will have a lag period affecting the borrowing costs. Short term downside will be due to unwinding of carry trade in emerging markets.

Its possible FCL goes down to $1.20 in a few months time.

Hi,

Back with another post on the comparison of Fraser Cpt with 7 other developers. This time I even compare with Wheelock and Amara.

Hm... this post is not to justify who's right and who's wrong, rather for discussion as the previous view has all be quite insightful for me.

http://tubinvesting.blogspot.sg/2016/11/...-best.html

I did review on its latest financials, FCL did improve from the last quarter.

For the year moving forward, REITs will be affected (most probably) and their earnings may fall. This will definitely affect their repayment of debt.

Will keep an eye on the leverage and continues to hold on to it.

<vested>

Interest rate hike not only REIT be affected. Property counter will also get it.

But the higher rate will have a lag period affecting the borrowing costs. Short term downside will be due to unwinding of carry trade in emerging markets.

Its possible FCL goes down to $1.20 in a few months time.

Yes I agree, cannot put wheelock together with fcl and oue(both are crippled with massive net debt). Wheelock is one of the few developers on sgx with 380mil in net cash, huge potential synergy with HPL, 76% owned by parent and trading at less than 0.6x books. Also the most consistent 6cts yoy payout stock. Its more of a net net stock worth categorising with maybe wing tai.

I have to agree Wheelock looks quite good as of now. It seems to be one of the developer with in a net-net position. However, I will not be putting wingtai in the same category as the rest of the developers here - It does not really hold any investment properties and its retail business seems to be suffering.

Wingtai currently has 611mil sgd worth of invesmtment properties in Sg, Hk, China and Malaysia, they recently bought another commerical property in Australia. If you follow Wingtai, you will know that management is going towards the right direction. To each his own though.

Thanks for the clarification. I didn't know why I had the perception that it is solely a developer.

[piggo]

Need guts because of write downs and impairments... 0.39x P/B, the discount is significant because general market wisdom is that a good part (~0.3x?) of the book value is not realisable. I'd think the high level of cash is not a "safety" margin, but a requirement due to higher cost of debt and deteriorating main business line.

Anyway, let's just leave it at that... as this thread is about FCL.

[ValueMushroom]

All the ratios computing are based on the current state of environment - i.e. low interest, plenty of liquidity. A highly geared company has an additonal risk of a sudden drying up in liquidity that forces it to sell its assets at sub-optimal prices or worse case to go out of business. Either scenarios are highly negative to its share prices. Just my thoughts on highly geared companies.

[jjlim84]

i think the main takeaway is rising interest rates is not good for companies having high debts. If we "ordinary laymen" can think of that, i hope the management of FCL will think of that too in their business plannings and acquiring of assets, which i think they will