Frasers Centrepoint’s net profit slipped 31% in FY14

Blame it on high restructuring costs.

Frasers Centrepoint’s reported net profit for FY14 dropped 31% year-on-year to $500.7m from $722.3m in FY13. The decline was brought about by losses from restructuring and acquisition costs and a lower fair value gain of $126m, compared to $276m in the last financial year.

However, CIMB notes that the outlook remains positive for FCT. Its acquisition of Australand will improve the group’s earnings visibility and position in Australia, while its mixed developments in China will also bring in steady revenue streams.

A key risk for FCT is its high net gearing. CIMB notes that FCT’s funding needs will have to be addressed via several sources, such as more divestments and the issuance of another $600m of perpetual securities, which will lower gearing to 0.83x from 0.95x.

“FCL is cheap at 45% discount to RNAV, has a clear growth path ahead and addressed its funding/gearing issues. Our RNAV-based target price (30% discount) drops marginally for our lower A$/S$ rate assumptions but FY15-16 EPS rises by 7-15% as we incorporate ALZ. Capital recycling initiatives and earnings delivery could be key catalysts,” noted CIMB.

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