1Q09 core net profit of S$71.4m forms 17% of our full-year forecast as lower property bookings and weaker dairy income due to the melamine scare proved to be drags. We believe results were below consensus as well.
Net gearing at 1Q09 was 0.66x, within the upper bound of its big-cap property peers. Potential write-downs of F&N’s UK and Australia properties could lift this ratio. While we take comfort in guidance that refinancing for over S$1bn of the S$1.7bn worth of maturing debt has been secured, risks of off-balance sheet commitments to re-capitalise FCOT remain, with the latter needing to retire over S$620m of maturing debt in 2009. A short-term loan of S$70m has already been given to the REIT. It remains to be seen if FCOT can successfully monetise its Japanese and Australian assets to pare down debt.
We lower our FY09-11 core EPS estimates by 0-19% to factor in slower inventory turnover and F&B income. We also reduce our end-CY09 RNAV by 13% to S$3.80 to account for: 1) potential capital drains to recapitalise FCOT; 2) lower valuations for its stakes in listed entities; and 3) lower ASPs. We continue to peg our target price at a 30% discount to RNAV to reflect its holding company structure and rising risks of asset write-downs. Accordingly, our target price drops to S$2.66 from S$3.09.
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