Initiation: a solid real-estate gemasiaresearch.daiwacm.com/eg/cgi-bin/files/Frasers_Centre...Frasers Centrepoint Limited (FCL) is one of Singapore’s largest residential developers.

See important disclosures, including any required research certifications, beginning on page 32

■ Investment case Frasers Centrepoint Limited (FCL) is one of Singapore’s largest residential developers. It has shown an astute reading of the local market over the past few years, focusing on the mass and mid-tier segments where sales have been very strong. While we believe the physical residential market looks set for continued softening, we believe shares of property developers have more than discounted the negative risks in the physical market and now offer strong value. FCL’s discount of 44% to our SOTP valuation of SGD2.62 is also wider than that of the other developers, even though FCL has pre-sold most of its projects under development and does not have a sizeable landbank in Singapore. Some 62.4% of its GAV is backed by commercial and hospitality assets, which also provide good recurring income. We

thus initiate coverage with a Buy (1) rating. ■ Catalysts TCC Group (TCC) holds 87.9% of FCL; we see the low free float as a key reason why FCL is, in our view, underappreciated by the market. A higher free float would draw more investor interest in FCL and could help reduce FCL’s discount to SOTP. TCC could also provide a potential platform for growth through a pipeline of assets outside of Thailand, as well as development opportunities within Thailand, and increased clarity on such plans should be constructive for the shares. FCL has plans for a hospitality REIT, and a successful listing should be positive for the company, freeing up capital and increasing fee income. The company, along with others in the sector, should be boosted if property prices and volumes in Singapore remain resilient, with no threat of policy risks. ■ Valuation Our 6-month target price is SGD1.84, based on a 30% discount (20% being 1SD below Singapore developers’ mean historical discount to Daiwa SOTP valuations, plus 10% for the low free float) to our SOTP of SGD2.62.

■ Risks Key risks to our call include a failure by its major shareholder to adequately manage its free float, the inability of the company to replenish landbank at reasonable prices, and a worse-than-expected downturn in the Singapore residential market.

Financials / SingaporeFCL SP

25 February 2014

Frasers Centrepoint

Initiation: a solid real-estate gem

• FCL is already a top Singapore real-estate company; next phase of growth could come from possible tie-ups with Thai TCC group

• FCL trades at a 44% discount to our SOTP; resolution of its limited free float (12.1%) could be a major positive catalyst

• Initiating with a target price of SGD1.84 pegged to a 30% discount to SOTP and Buy (1) rating

Source: FactSet, Daiwa forecasts

Financials / Singapore

Frasers CentrepointFCL SP

Target (SGD): 1.840Upside: 24.7%24 Feb price (SGD): 1.475

Buy (initiation)

OutperformHoldUnderperformSell

1

2

3

4

5

98

102

107

111

115

1.40

1.48

1.55

1.63

1.70

Jan-14

Share price performance

Frasers Ce (LHS) Relative to FSSTI (RHS)

(SGD) (%)

12-month range 1.400-1.685Market cap (USDbn) 3.373m avg daily turnover (USDm) 1.72Shares outstanding (m) 2,890Major shareholder TCC (87.9%)

Financial summary (SGD)Year to 30 Sep 14E 15E 16ERevenue (m) 2,187 2,149 2,143Operating profit (m) 723 519 536Net profit (m) 540 467 435Core EPS (fully-diluted) 0.187 0.162 0.151EPS change (%) 20.9 (13.5) (6.9)Daiwa vs Cons. EPS (%) 20.5 (10.2) (5.9)PER (x) 7.9 9.1 9.8Dividend yield (%) 3.5 3.5 3.5DPS 0.052 0.052 0.052PBR (x) 0.7 0.6 0.6EV/EBITDA (x) 8.6 11.5 9.7ROE (%) 9.0 6.9 6.1

Evon Tan, CFA(65) 6499 6546

[email protected]

David Lum, CFA(65) 6329 [email protected]

How do we justify our view?How do we justify our view?

Financials / Singapore FCL SP

25 February 2014

- 2 -

Initiation: A solid real estate gem .................................................................................................. 6

Investment thesis ........................................................................................................................ 6

Background .................................................................................................................................. 7

Residential: The bread and butter .............................................................................................. 9

Commercial: Opportunities to create value ............................................................................... 12

Bidding for land – Too aggressive in recent bids? .................................................................... 13

Hospitality: Clear asset-light growth ......................................................................................... 16

Valuation .................................................................................................................................... 18

Catalysts ..................................................................................................................................... 21

Risks .......................................................................................................................................... 22

Appendix A ................................................................................................................................... 23

Sector fundamentals: worsening, but far from a disaster ........................................................ 23

Pipeline has increased slightly .................................................................................................. 24

Home prices: a more moderate decline .................................................................................... 25

Appendix B .................................................................................................................................... 27

Sites won by FCL in 2012 and 2013 ........................................................................................... 27

Other sites awarded in 2012 and 2013 ..................................................................................... 28

Contents


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Growth outlook FCL: revenue breakdown – development and others

FCL’s top and bottom lines for the next few years are well backed by strong pre-sales (totalling SGD3.2bn as at end-FY13 [SGD3.0bn as at end-1Q FY14]) of its residential projects. Recurring income from its other businesses is also growing at a healthy clip (we forecast a 9.5% CAGR for FY14-16).

Source: Daiwa forecasts

Note: September financial year end

Valuation Singapore developers: price-to-SOTP (x)

Our SOTP for the stock is SGD2.62, and FCL is currently trading 44% below this. We see upside from these levels, and peg our target price to a 30% discount to SOTP (20% being 1SD below Singapore developers’ historical mean discount to our SOTP valuations and an additional 10% discount to account for the low free float).

Source: Daiwa estimates

Earnings revisions FCL: core EPS – Daiwa vs. consensus

FCL is newly listed and currently covered by just 2 other brokers, upon which Bloomberg bases its consensus forecasts. Our core EPS numbers are higher than consensus for FY14 and below for FY15 and FY16; we believe this could be due to differences in assumptions for revenue recognition of projects. The addition of our numbers to the Bloomberg-consensus numbers would result in a technical upward adjustment for FY14, and downward adjustments for FY15 and FY16. We do not assume any further residential landbank acquisitions in Singapore. If FCL is able to acquire more landbank in Singapore at a reasonable price, this could result in upward revisions to our numbers.

Source: Bloomberg, Daiwa forecasts

How do we justify our view?

Growth outlook

Valuation

Earnings revisions

0

500

1,000

1,500

2,000

Development revenue Other income

FY13 FY14E FY15E FY16E

(SGDm)

CAGR

(SGDm)(SGDm)

9.5%

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Jan-

05

Jun-

05

Nov-

05

Apr-0

6

Sep-

06

Feb-

07

Jul-0

7

Dec-

07

May

-08

Oct

-08

Mar

-09

Aug-

09

Jan-

10

Jun-

10

Nov-

10

Apr-1

1

Sep-

11

Feb-

12

Jul-1

2

Dec-

12

May

-13

Oct

-13

CapitaLand CDL

FCL: 0.56x

0.00

0.05

0.10

0.15

0.20

FY14E FY15E FY16E

Daiwa Bloomberg Consensus (as of 25th Feb)

SGD/sh

Buy (initiation)

OutperformHoldUnderperformSell

1

2

3

4

5


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Key assumptions

Profit and loss (SGDm)

Cash flow (SGDm)


Year to 30 Sep 2009 2010 2011 2012 2013 2014E 2015E 2016E

Median price non-landed core central (YoY %)

n.a. 14.2 4.0 0.8 (1.9) (7.8) (3.0) 0.0

Median price non-landed outside central (YoY %)

n.a. 15.0 7.7 6.5 6.5 (9.6) (5.9) 0.0

PATMI from fair value changes on investment properties (SGDm)

n.a. 100 110 336 276 90 91 93

Year to 30 Sep 2009 2010 2011 2012 2013 2014E 2015E 2016EInvestment properties n.a. 193 149 150 136 135 139 163Development properties n.a. 1,373 1,934 1,069 1,682 1,772 1,709 1,656Other Revenue n.a. 142 151 193 234 280 302 324Total Revenue n.a. 1,708 2,234 1,412 2,053 2,187 2,149 2,143Other income n.a. 7 (3) 14 (3) 0 0 0COGS n.a. (1,038) (1,442) (785) (1,241) (1,117) (1,276) (1,236)SG&A n.a. (103) (140) (177) (153) (186) (183) (182)Other op.expenses n.a. (113) (119) (132) (145) (161) (171) (189)Operating profit n.a. 461 530 331 512 723 519 536Net-interest inc./(exp.) n.a. (62) (55) (60) (61) (52) (61) (65)Assoc/forex/extraord./others n.a. 222 309 450 382 152 244 233Pre-tax profit n.a. 621 784 721 832 822 701 704Tax n.a. (118) (141) (93) (97) (168) (105) (119)Min. int./pref. div./others n.a. (19) (40) 14 (13) (25) (38) (56)Net profit (reported) n.a. 484 603 642 722 629 559 528Net profit (adjusted) n.a. 385 493 306 447 540 467 435EPS (reported)(SGD) n.a. 0.168 0.209 0.222 0.250 0.218 0.193 0.183EPS (adjusted)(SGD) n.a. 0.133 0.171 0.106 0.155 0.187 0.162 0.151EPS (adjusted fully-diluted)(SGD) n.a. 0.133 0.171 0.106 0.155 0.187 0.162 0.151DPS (SGD) n.a. 0.080 0.069 0.052 0.069 0.052 0.052 0.052EBIT n.a. 461 530 331 512 723 519 536EBITDA n.a. 467 538 338 519 730 527 543

Year to 30 Sep 2009 2010 2011 2012 2013 2014E 2015E 2016EProfit before tax n.a. 621 784 721 832 822 701 704Depreciation and amortisation n.a. 6 8 7 8 8 8 8Tax paid n.a. (94) (126) (141) (87) (168) (105) (119)Change in working capital n.a. 367 813 (467) (313) (391) 665 800Other operational CF items n.a. (518) (761) (678) (742) (62) (152) (140)Cash flow from operations n.a. 382 717 (558) (303) 209 1,116 1,253Capex n.a. (59) (95) (85) (97) (526) (847) (335)Net (acquisitions)/disposals n.a. 342 48 (101) 61 0 0 0Other investing CF items n.a. 3 (194) 43 256 0 0 0Cash flow from investing n.a. 286 (240) (142) 220 (526) (847) (335)Change in debt n.a. (654) (238) 1,078 (462) (407) 423 168Net share issues/(repurchases) n.a. 0 0 0 0 1,000 0 0Dividends paid n.a. (256) (208) (152) (151) (200) (150) (150)Other financing CF items n.a. 0 5 12 (0) (330) 0 0Cash flow from financing n.a. (910) (441) 937 (613) 63 273 18Forex effect/others n.a. 0 0 0 0 0 0 0Change in cash n.a. (242) 36 237 (696) (254) 543 935Free cash flow n.a. 323 623 (643) (400) (317) 270 918

Financial summary


25 February 2014

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Balance sheet (SGDm)

Key ratios (%)


Company profile

Frasers Centrepoint Limited (FCL) is the former real-estate arm of Fraser and Neave Limited. Spun off and listed on the Singapore Exchange in January 2014, Thailand's TCC Group is the main shareholder and controls 87.9% of the company currently.

As at 30 Sep 2009 2010 2011 2012 2013 2014E 2015E 2016ECash & short-term investment n.a. 952 980 1,206 507 162 614 1,455Inventory n.a. 1 2 4 4 4 4 4Accounts receivable n.a. 654 678 328 303 303 303 303Other current assets n.a. 4,578 4,357 4,539 5,148 5,142 4,477 3,677Total current assets n.a. 6,185 6,017 6,077 5,962 5,610 5,397 5,438Fixed assets n.a. 2,143 2,492 2,855 3,147 4,126 5,029 5,421Goodwill & intangibles n.a. 0 0 0 0 0 0 0Other non-current assets n.a. 1,239 1,299 1,426 1,337 1,426 1,606 1,775Total assets n.a. 9,567 9,808 10,357 10,445 11,163 12,032 12,634Short-term debt n.a. 1,163 219 168 629 1,806 1,806 1,806Accounts payable n.a. 2,130 2,271 1,660 1,725 548 548 548Other current liabilities n.a. 220 202 138 116 116 116 116Total current liabilities n.a. 3,513 2,691 1,965 2,470 2,470 2,470 2,470Long-term debt n.a. 506 1,086 1,425 1,175 1,438 1,862 2,029Other non-current liabilities n.a. 1,412 1,425 2,011 1,321 651 651 651Total liabilities n.a. 5,432 5,201 5,402 4,967 4,560 4,983 5,151Share capital n.a. 1,084 1,084 1,084 1,084 1,754 1,754 1,754Reserves/R.E./others n.a. 2,875 3,300 3,848 4,367 4,797 5,205 5,583Shareholders' equity n.a. 3,959 4,384 4,932 5,451 6,550 6,959 7,337Minority interests n.a. 176 222 23 27 52 90 146Total equity & liabilities n.a. 9,567 9,808 10,357 10,445 11,163 12,032 12,634EV n.a. 4,129 3,722 3,449 4,531 6,252 6,081 5,295Net debt/(cash) n.a. 718 324 386 1,298 3,083 3,055 2,380BVPS (SGD) n.a. 1.370 1.517 1.707 1.886 2.267 2.408 2.539

Year to 30 Sep 2009 2010 2011 2012 2013 2014E 2015E 2016ESales (YoY) n.a. n.a. 30.8 (36.8) 45.4 6.6 (1.7) (0.3)EBITDA (YoY) n.a. n.a. 15.1 (37.0) 53.4 40.7 (27.9) 3.1Operating profit (YoY) n.a. n.a. 14.9 (37.5) 54.5 41.3 (28.2) 3.2Net profit (YoY) n.a. n.a. 28.2 (38.0) 46.1 20.9 (13.5) (6.9)Core EPS (fully-diluted) (YoY) n.a. n.a. 28.2 (38.0) 46.1 20.9 (13.5) (6.9)Gross-profit margin n.a. 39.3 35.4 44.4 39.5 48.9 40.6 42.3EBITDA margin n.a. 27.3 24.1 24.0 25.3 33.4 24.5 25.4Operating-profit margin n.a. 27.0 23.7 23.5 24.9 33.0 24.2 25.0Net profit margin n.a. 22.5 22.1 21.6 21.8 24.7 21.7 20.3ROAE n.a. 19.4 11.8 6.6 8.6 9.0 6.9 6.1ROAA n.a. 8.0 5.1 3.0 4.3 5.0 4.0 3.5ROCE n.a. 15.9 9.0 5.3 7.4 8.4 5.0 4.9ROIC n.a. 7.7 8.9 5.6 7.5 7.0 4.5 4.5Net debt to equity net cash 18.1 7.4 7.8 23.8 47.1 43.9 32.4Effective tax rate n.a. 18.9 18.0 12.9 11.6 20.4 15.0 16.9Accounts receivable (days) n.a. 69.8 108.8 130.0 56.1 50.5 51.4 51.6Current ratio (x) n.a. 1.8 2.2 3.1 2.4 2.3 2.2 2.2Net interest cover (x) n.a. 7.4 9.7 5.5 8.4 13.9 8.5 8.2Net dividend payout n.a. 47.5 33.2 23.4 27.7 23.8 26.9 28.4Free cash flow yield n.a. 7.6 14.6 n.a. n.a. n.a. 6.3 21.5

Financial summary continued …


25 February 2014

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Initiation: a solid real-estate gem

One of the top residential developers in Singapore, FCL only recently became accessible to investors as a pure real estate play. Most of its projects are well pre-sold and its GAV solidly backed by other non-residential assets, yet FCL trades at a wider-than-peer discount to its SOTP, likely as a result of its free float of just 12.1%.

Investment thesis

FCL is one of the top residential developers in Singapore. Since launching its first residential project in 1993, it has delivered over 12,000 private residential homes in Singapore. In FY13 alone, it sold 1,904 units in Singapore. An upgraded sector view and FCL undervaluation relative to sector We recently upgraded our view of the Singapore property developers to Positive (excerpt of report: Turning more positive , published on 7 February 2014, attached as Appendix A). While we believe the physical residential market looks set for continued softening under the weight of impending supply, we believe shares of property developers have more than discounted the negative risks in the physical market. According to our estimates, they are currently trading at or below levels reached during the global financial crisis in 2008, and we believe they now offer strong value. Furthermore, FCL’s discount of 44% to our SOTP valuation of SGD2.62 is also wider than that of the other developers – 27% for CapitaLand (CAPL) and 35% for City Developments (CDL) – even though FCL has pre-sold most of its projects under development and does not have a sizeable landbank in Singapore. We estimate that the “value at risk” from its Singapore residential exposure amounts to just SGD0.36/share in

a worst case scenario; hence, even in a bear Singapore residential case, an investor who buys FCL still gets a 36% discount to its SOTP. In fact, at the current share price of SGD1.475, an investor effectively gets the entire Singapore, China, and Australia residential exposure for free, on our estimates. Some 62.4% of FCL’s GAV is backed by commercial and hospitality assets, which produce relatively stable and recurring income. We believe the main reason for the higher-than-peer discount is FCL’s low free float of 12.1%, as Thai billionaire Charoen Sirivadhanabhakdi-controlled TCC currently effectively owns 87.9% of the company. TCC a positive for FCL As FCL’s largest shareholder, it is in TCC’s interests, in our view, to help ensure that FCL is not unfairly discounted by the market, and we believe that an improved free float will gradually be eased through, which will help reduce its current valuation discount. Furthermore, the privately held TCC also has substantial property assets – disclosures provided in FCL’s introductory documents noted that as of end June 2013, it owned 17 retail shopping centres, 7 commercial offices, 40 hotels with over 10,000 keys/rooms, and over 48,000 acres of landbank for development. FCL has already noted that it is in discussions with TCC to acquire or manage some of its hospitality assets (potentially 2,017 units by 2017, according to its 1Q14 results presentation). We believe TCC could support FCL’s growth through providing a pipeline of assets, as well as development opportunities both in and outside of Thailand. Possibly the highest yield in the sector FCL paid out SGD0.069/share in dividends last year, which translates into an industry-leading yield of 4.7% at its current share price. We forecast a more conservative dividend of SGD0.052/share (based on the dividend payout of around SGD150m in FY12, the lowest payout for the past 4 financial years); the resultant yield of 3.5% is still higher than peer FY14 yields of between 2.3% (CDL) to 3.2% (CAPL). While the company’s dividend policy does not currently establish a baseline for dividends, we believe management is mindful of general investor preference for dividend stability and will appropriately weigh that against its profits, cash flow and reinvestment opportunities. In our view, profits and cash flow can easily support our payout forecast and further upside based on the strength of FCL’s pre-sales, although if

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/Singapore_Property_Developers_140207.pdf#page=1


25 February 2014

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higher-than-forecast yields did not materialise due to the company seeing better reinvestment opportunities, investors should not read this negatively as well.

Background

FCL was previously the property arm of Fraser and Neave Limited (F&N), which became a part of Thailand’s TCC in 2013 after an intense bidding war which resulted in the largest takeover in Singapore’s corporate history. Post the takeover of F&N, TCC had an effective interest of 90.3% in the company. After a distribution in specie (DIS) of FCL shares to F&N shareholders (two FCL shares for each F&N share held) and a sale of shares to increase the free float to a level sufficient to meet the Singapore Stock Exchange’s listing requirements, TCC now holds 87.9% of FCL – 59.4% through TCC Assets and 28.6% through its listed subsidiary, Thai Beverage. The company was listed by way of introduction on the Singapore Stock Exchange (SGX) on 9 January 2014. FCL: shareholding structure (pre-DIS)

Source: Company, Daiwa

FCL: shareholding structure (post-DIS)


Group structure and businesses FCL operates across the residential, commercial and hospitality sectors, with its core markets being Singapore, Australia and China.

TCC Assets Thai Beverage

Public

F&N

Charoen Sirivadhanabhakdi and family

Food & beverage

Printing & publishing

FCL

65.9%

28.6% 59.4% 12.1%

TCC Assets Thai Beverage

Public

F&N

Charoen Sirivadhanabhakdi and family

Food & beverage

Printing & publishing

Property (FCL)

65.9%

28.6% 61.7% 9.7%


25 February 2014

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FCL: group structure and businesses

Source: Company (stakes in REITs as of end FY13)

Residential. The Singapore residential development business, under Fraser Centrepoint Homes, is the most significant business unit within FCL. By homes sold in 2012, it was the 3rd-largest developer in Singapore (behind Far East Organization and City Developments /Hong Leong Group). The overseas residential business is run under Frasers Property – with the major markets being Australia and China, while the company also has projects and land in the UK, New Zealand, Thailand and Malaysia. Commercial. In the commercial property space, FCL has interests in malls, offices, and business parks, mainly in Singapore. It has ownership interests in 11 malls and also manages a third party-owned mall in Singapore, with a total of 2.4m sq ft NLA, making it the 3rd-largest owner and manager of mall space in Singapore with a 6.5% market share in 2012, according to research by Urbis. FCL also owns the Crosspoint Mall in Beijing and has a stake in the newly completed Central Mall in Sydney. In offices and business parks, the company has interests in 7 assets in Singapore, 2 in Australia, and 1 each in China and Vietnam. A portion of these commercial assets is held through 2 SGX-listed REITs – Fraser Centrepoint Trust (FCT), which holds 5 of its Singapore malls, and Fraser Commercial Trust (FCOT), which holds 3 of its office assets in Singapore and another 2 in Australia. FCL is the sponsor as well as manager for these REITs, and derives fee income from their management. Through FCT’s stake in Hektar REIT, a Malaysia-listed retail-

focused REIT, FCL also has a small exposure to retail malls in Malaysia. Hospitality. FCL’s hospitality business is operated under Frasers Hospitality. From 2 properties in Singapore in 1998, Frasers Hospitality now has interests in 49 properties across over 40 cities worldwide (of which it has full/partial ownership stakes in 14 properties), bringing its number of apartments under management to about 8,000 as of the end of FY13. The company expects to add a further 7,100 apartments to its portfolio over the next 3 years, mainly under secured management contracts. FCL: FY13 revenue by business segment

Source: Company

Investment properties

6.6%

Development properties

82.0%

Hospitality9.0%

Corporateand others

2.5%


25 February 2014

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FCL: FY13 PBIT by business segment

Source: Company

FCL: FY13 revenue by geography

Source: Company

FCL: FY13 PBIT by geography

Source: Company

FCL has a pronounced an Overweight stance on the development business and its home market of Singapore. While this is likely to remain so in the near term, the tilt is likely to slowly become more even, as management has noted its intention to grow in a more balanced manner across segments and geographies.

Dividend policy FCL’s stated dividend policy is to “recommend dividends of up to 75% of net profit after tax”. The policy should become more defined shortly, with continued progression as a separately listed entity.

Residential: The bread and butter

A good track record in Singapore FCL launched its first residential project, The Anchorage, in 1993, which was a redevelopment of land previously occupied by F&N’s old brewery and soft drinks plants. Since then, FCL has delivered over 12,000 private residential homes in Singapore. Showing an astute reading of the local property market, FCL has built its core strength in the mid-tier and mass market segments, which have proven relatively resilient over recent economic cycles. Number of homes sold by FCL in Singapore

Source: Company (Introductory Document, Annual Report 2013)

Current projects under development have seen strong pre-sales, and we expect margins for these current projects under development to be healthy given the buoyant achieved ASPs versus its land costs. Most of the sites where its projects are currently under way were purchased through government land sales over the past three years; meanwhile, Flamingo Valley and the Waterfront Gold/Isle projects are redevelopments of collective sales sites purchased back in 2007 and 2006.

Investment properties

20.6%

Development properties

66.4%

Hospitality12.2%

Corporate and others

0.8%

SingaporeSGD1,583.5m

77.1%

AustraliaSGD187.1m

9.1%China

SGD157.4m7.7%

OthersSGD124.7m

6.1%

SingaporeSGD499.4m

87.4%

AustraliaSGD4.2m

0.7%China

SGD29.6m5.2%

OthersSGD38.0m

6.7%

382

1,103 1,141

1,579

319

1,805

575

2,435 2,647

1,904

0

500

1,000

1,500

2,000

2,500

3,000

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13


25 February 2014

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FCL: Singapore residential projects completed in FY13 and under development as at end-FY13

Name

FCL's effective interest

No of units

(total)

% sold as of end

FY13

Unsold units as

of end FY13

% completed

as of end FY13

Estimated completion

date

ASP (SGD /sq ft

Land cost

(SGD /sq ft ppr)

Waterfront Key 100% 437 100% - 100% Completed 848 240Esparina Residences (EC) 80% 573 97% 19 100% Completed 743 315Boathouse Residences 50% 494 100% - 48% Jan-15 910 320eCO 33.33% 750 88% 90 10% Jan-16 1322 534Eight Courtyards 50% 656 100% - 80% Jun-14 807 321Flamingo Valley 100% 393 95% 19 94% Dec-13 1222 415Palm Isles 100% 430 96% 18 27% Jun-15 865 325Q Bay Residences 33.33% 632 86% 91 13% May-16 1022 418Seastrand 50% 475 99% 5 58% Jul-14 915 334Twin Fountains (EC) 70% 418 77% 96 10% Nov-15 744 302Twin Waterfalls (EC) 80% 728 100% - 42% Mar-15 710 270Waterfront Gold 50% 361 100% - 81% Jan-14 973 240Waterfront Isle 50% 563 100% 2 48% Nov-14 1041 240Watertown 33.33% 992 99% 9 19% Aug-16 1191 482Total 7,902 96% 349


Note: ppr = per plot ratio

Overseas sales ramping up FCL’s first overseas residential ventures were projects in Australia and the UK launched in 2000. It then ventured into residential development in China the following year with a project in Shanghai. Today, its major overseas markets are Australia and China, while it also has projects and land in the UK, New Zealand, Thailand and Malaysia. Number of homes sold by FCL outside Singapore

Source: Company (Introductory Document, Annual Report 2013)

In Australia, where FCL sold 520 units in FY13, its exposure is mainly in Sydney and Perth through a few large projects – namely One Central Park (one of the largest urban regeneration projects in Australia, on the

former Carlton & United Breweries site in inner Sydney), Putney Hill and Queens Riverside. FCL: Australia residential projects completed in FY13 and under development as of end FY13

Name


No of units

% sold

as of end

FY13

Unsold units as of end

FY13


date

ASP (AUD /sq ft)

Land cost

(AUD /sq ft ppr)

One Central Park - West 37.5% 240 98% 5 Completed 1,117 252 Park Lane 5A 37.5% 155 86% 22 Dec-13 1,218 257 One Central Park - East 37.5% 383 87% 50 Dec-13 1,117 252 Park Lane 5B 37.5% 238 83% 40 Feb-14 1,239 257 The Mark 37.5% 412 71% 120 Jul-14 1,245 256 Queens Riverside (QII) 87.5% 107 27% 78 Mar-15 689 29 Queens Riverside (QIII) 87.5% 267 84% 42 Jun-14 889 29 Putney Hill (Phase 1A, 2A, 3A, 4A) 75% 363 45% 200 Mar-16 710 100 Putney Hill (Phase 1H, 2H) 75% 84 100% - Oct-15 491 100 Total 2,249 75% 557


In China, where FCL has 2 main residential projects – Baitang One in Suzhou and Gemdale MegaCity in Shanghai – the company sold a total of 844 units in FY13 in phases 2A and 2B of the former and phase 2A of the latter. FCL: China residential projects completed in FY13 and under development as of end FY13

Name


No of units

% sold as of end

FY13

Unsold units as of end

FY13


date

ASP (CNY

/sq ft)

Land cost

(CNY/sq ft ppr)

Baitang One – Phase 2A 100 538 80% 108 Completed 1,103 233

Baitang One – Phase 2B 100 360 14% 308 Sep-14 1,241 233

Gemdale Megacity – Phase 2A 45

1,065 43% 607 Jun-15 1,563 174

Total

1,963 48% 1,023

Source: Company, Daiwa Research

Over SGD3.2bn of revenue to be booked from pre-sold units from FY14-16 At the end of FY13, FCL had pre-sold SGD3.2bn worth of apartments, which will be recognised over the next few years based on project construction progress (for Singapore residential projects excluding executive condominiums) or project completion (executive condominiums in Singapore and residential projects in China and Australia). We estimate that about SGD1.4bn, or 44%, of these pre-sales will be booked as revenue in FY14. About SGD1.1bn should be booked in FY15, and the remainder in FY16. The pre-sales backlog provides solid backing for revenue for the next 3 years, as well as sizeable cash inflow for reinvestment.

3 6

209 113

198

479

1,101

798 712

1,400

0

200

400

600

800

1,000

1,200

1,400

1,600

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13


25 February 2014

- 11 -

As at the end of 1Q FY14, the amount of revenue to be booked from pre-sold units remains a solid SGD3.0bn (SGD2.1bn to be booked from Singapore, SGD0.8bn from Australia, and SGD0.1bn from China). Landbank – lean in Singapore, ample and low-cost in Australia and China FCL aims to sell about 1,000 units each in Singapore and outside of Singapore each financial year, with a target PBIT contribution of at least SGD200m from its Singapore residential development (and over time, its overseas residential developments). Singapore. FCL has about 400 unsold units from its completed projects and projects under development, and can develop an estimated 1,537 units from its current landbank, translating to less than 2 years of sales and a need to continue replenishing its landbank to stay a major player in the local market. FCL: Singapore landbank

Site


Estimated no of units

Estimated saleable area

(m sqft)

Land cost (SGD/sq ft

ppr)RiverTrees Residences (Fernvale Close) 40 496 0.47 533 Yishun Central 100 900 0.72 1,077* 51 Cuppage Road 100 141 0.27 1,194 Total 1,537 1.46


* Includes retail

This level of landbank is not new for FCL – the company has generally maintained a lean landbank in Singapore and turned around acquired sites quickly, with launches normally within a year of acquisition. Its landbank held an estimated development potential of 2,330 units as of end FY11 and 1,299 units as of end FY12. The quick turnaround of land has helped FCL achieve good ROEs in past years, and for the years under forecast, we expect FCL to continue generating strong core ROEs of 6.1-9.0%.

FCL: Scene at RiverTrees Residences show flat

Source: Daiwa

The only site which has remained undeveloped for a few years is 51 Cuppage Road (formerly known as Starhub Centre), which it acquired in 2010 from CapitaCommercial Trust. Next to The Centrepoint, the office building is expected to be redeveloped into a high-end mixed retail and residential development. We expect it to continue selective acquisition of sites, mainly through government land sales. Australia. Adding around 600 unsold units from completed projects and projects under development to its landbank of 2,405 units, FCL has about 3,000 units in Australia, which can sustain 5-7 years of sales at the current run rate. FCL: Australia landbank

Site




(m sqft)

Land cost (AUD/sq

ft ppr)Central Park, Sydney - Fraser/Sekisui JV 37.5% 1,096 0.98 163Central Park, Sydney - Non-JV 75% 561 0.28 163Frasers Landing 56.25% 280 1.55 6Putney Hill 75% 342 0.34 100QI (Queens Riverside) 87.5% 126 0.11 30Total 2,405 3.26


Management appears relatively positive about the Australian market, noting that it is a sizeable but fairly stable market. The company last made a land acquisition in Australia in 2010, buying the Putney Hill site. We see it continuing to be on an active lookout for well-located residential and mixed-use sites, particularly in Sydney, Perth and Melbourne. Urban renewal initiatives in the country should also provide good opportunities for acquisitions.


25 February 2014

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China. We estimate that FCL has over 1,000 unsold units in completed projects and projects under development in China. Adding to its landbank of over 7,000 units, FCL has inventory for more than 5-7 years of sales. FCL: China landbank

Site




(m sqft)

Land cost (CNY/sq

ft ppr)Baitang One – Phase 3 100% 2,062 2.79 237Gemdale Megacity – Phase 2B to 5 45% 4,978 5.53 179Total 7,040 8.32


While the company has expressed interest in developing residential and mixed-use projects in first-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen, as well as select second-tier cities such as Wuxi, Wuhan, and Chengdu, to tap growth in domestic consumption, we sense that it is in no rush at all to pile on more land in China unless asking prices moderate. Its last acquisition there was made more than 8 years ago.

Commercial: opportunities to create value

Significant commercial assets and a major retail player in Singapore FCL was a pioneer in the Singapore retail scene in many ways, first embarking on property development in 1980 with the building of The Centrepoint in the heart of Orchard Road, one of the country’s first modern malls which opened in 1983. Northpoint, launched in 1992, was Singapore’s first suburban retail mall. Today, it remains a major player in the Singapore retail scene with a 6.5% market share in 2012 according to research by Urbis, behind CapitaMalls Asia, which controls about one-fifth of the country’s total shopping mall floor space, and private property fund Pramerica (6.8% market share). FCL: retail properties (non-REIT) as of end FY13

Name Location


NLA (sq ft) Occ rate

Book value (SGDm)

Book value per NLA

(SGD/sq ft)Waterway Point* Singapore 33.3% 360,951 NA 732 2,028 The Centrepoint Singapore 100% 333,329 98% 640 1,920 Compass Point Singapore 19% 266,586 100% 530 1,988 Changi City Point Singapore 50% 207,237 98% 199 960 Robertson Walk (Retail) Singapore 100% 97,044 99% 99 1,020 Valley Point (Retail) Singapore 100% 39,817 100% 36 904

Central Sydney, Australia 37.5% 149,652 NA 141 942

Crosspoint Mall Beijing, China 100% 161,909 92% 59 364


* Completion expected in 2015, NLA of 360,951 sq ft per FCL's estimate in its 2013 Annual Report.

FCL: retail properties (held by its REIT, FCT) as of end FY13

Name Location


NLA (sq ft) Occ rate

Book value (SGDm)

Book value per NLA

(SGD/sq ft)Causeway Point Singapore 41% 416,137 100% 1006 2,417 Northpoint Singapore 41% 235,653 99% 638 2,707 Yew Tee Point Singapore 41% 73,602 97% 161 2,187 Bedok Point Singapore 41% 81,393 97% 129 1,585 Anchorpoint Singapore 41% 71,610 97% 86 1,201


FCL: office/industrial properties (non-REIT) as of end FY13

Name Location


NLA (sq ft)

Occ rate

Book value (SGDm)

Book value per NLA

(SGD/sq ft)51 Cuppage Road Singapore 100% 144,662 74% 392 2,710 One@Changi City Singapore 50% 665,914 91% 281 422 Alexandra Point Singapore 100% 199,380 100% 271 1,359 Valley Point (office) Singapore 100% 183,109 91% 233 1,272 Chengdu Logistics Hub

Chengdu, China 80% 703,981 78% 89 126

Me Linh Point Ho Chi Minh,

Vietnam 75% 188,896 100% 51 270


FCL: office/industrial properties (held by its REIT, FCOT) as of end FY13

Name Location


NLA (sq ft)

Occ rate

Book value (SGDm)

Book value per NLA

(SGD/sq ft)China Square Central Singapore 27.5% 372,453 93.5% 573 1,538 Alexandra Technopark Singapore 27.5% 1,045,227 100% 465 445 55 Market Street Singapore 27.5% 71,796 100% 133 1,852

Central Park* Perth,

Australia 13.8% 357,186 93.5% 407 1,140 Caroline Chisholm Centre

Canberra, Australia 27.5% 433,182 100% 232 535


* FCOT owns 50% of the Central Park property; NLA and book value per FCOT are based on its 50% interest

Ready pipeline and opportunities for capital recycling FCT, FCL’s 41%-owned retail REIT, was listed in 2006 with an initial portfolio of Causeway Point, Northpoint and Anchorpoint. It expanded its asset portfolio with acquisitions from FCL – first Yew Tee Point and the new wing of Northpoint (both completed in 2008) in January 2010, and then Bedok Point (completed in 2010) in August 2011. All in all, gross proceeds from divestments from FCL to FCT have totalled SGD1.31bn. We see Changi City Point, which started operations in November 2011 and had an occupancy rate of 98% as at the end of FY13, as a stabilised asset ripe for divestment to FCT. Rents at the 207,000 sq ft NLA mall averaged SGD9.08/sq ft/month as of June 2013; and we estimate an 8.8% NPI yield on the mall’s book value of SGD199m as of end-FY13. Waterway Point in Punggol, part of the Watertown development, will be completed in 2015 and should be next in the line for asset recycling in a few more years,


25 February 2014

- 13 -

followed by the retail development on the recently acquired Yishun Central site. Opportunities to create value through redevelopments and AEI FCL has a number of assets located in prime areas, but which appear to command subpar valuations likely due to the age of the properties. These include The Centrepoint, 51 Cuppage Road, Robertson Walk, and Valley Point. For the adjacent properties Centrepoint and 51 Cuppage Road, a redevelopment and integration of both properties would likely yield the most synergies and value for shareholders. The Centrepoint is over 30 years old now (although it received a revamp in 2006), and its average rental was just SGD9.90/sq ft for June 2013. This was due partly to a lower rent paid by Robinsons, which occupies 130,000 sq ft in the mall which it has anchored since 1983. Robinsons has opened a new flagship store just down the road at The Heeren, and will let its lease at Centrepoint run out. A redevelopment would facilitate integration with the retail portion of 51 Cuppage Road, and likely also raise the ASPs for the high-end residential units planned at 51 Cuppage Road. However, we would highlight there are obstacles to redevelopment. FCL does not own the entire plot on which The Centrepoint sits, and private owners of leasehold apartments above the back of the mall have not been inclined to sell. Redevelopment here may thus be a longer-term story. Likely to sell overseas retail assets Outside of Singapore, FCL owns just 1 mall each in China and Australia – the Crosspoint Shopping Centre in Xinjiekou, Beijing and the newly completed Central retail mall in Sydney (part of its Central Park project). It previously also owned another mall in Australia, the Bridgepoint Shopping Centre in Sydney, which it acquired back in 1992 but disposed off in 2011. Given that a degree of scale is needed with retail assets, FCL will likely dispose of these lone overseas assets (total book value as of end FY13: SGD112m) if reasonable offers present themselves.

Bidding for land – too aggressive in recent bids?

FCL has surprised some market watchers in the past year, winning sites with bids well above market expectations and competing bids, leading to concerns that its managers may have a different mandate and risk-return profile under the new owners. Office site at Cecil Street/Telok Ayer In August 2013, FCL acquired a land parcel at Cecil Street/Telok Ayer for SGD924m through a public tender. This translated into a land cost of SGD1,112/sq ft ppr for the 7,603.2sqm site, which has a maximum permissible GFA of 77,162sqm. The net lettable area is estimated at 705,000 sq ft. Location of land parcel at Cecil Street/Telok Ayer Street

Source: Urban Redevelopment Authority

According to the Straits Times, market expectations had been for the site to fetch between SGD830/sq ft and SGD960/sq ft ppr. FCL’s bid thus came in 24.3% above the middle of this range, as well as 18.8% above the 2nd-highest bid from Euland Pte Ltd, a unit of Far East Organization. FCL plans to build an iconic grade-A office tower on the prime site, which will be directly connected to the Tanjong Pagar MRT station. Total development cost is expected to be SGD1.5bn, or around SGD1,800/sq ft, and the project is slated for completion in 2016.


25 February 2014

- 14 -

Required rental not excessive. We see the closest comparable to this upcoming office tower as Capital Tower, owned by CapitaCommercial Trust. The property was valued at SGD1,282m in its latest valuation as at the end of December 2013, or SGD1,738/sq ft based on its NLA of 741,000 sq ft. The cap rate used was 3.75%. We estimate FCL’s break-even rental to be about SGD8.96/sq ft/month, which is below current market rentals (grade-A office rental was SGD9.75/sq ft/mth in 4Q13, per data from CBRE). Sensitivity analysis of Cecil Street / Telok Ayer site break-even rental /sq ft/mth to cap rates and occupancy rates

Cap rate (%) Occupancy rate (%) 3.25% 3.50% 3.75% 4.00% 4.25%90.0% 8.20 8.83 9.46 10.09 10.7292.5% 7.98 8.59 9.20 9.82 10.4395.0% 7.77 8.36 8.96 9.56 10.1697.5% 7.57 8.15 8.73 9.31 9.90100.0% 7.38 7.95 8.51 9.08 9.65


Office rents appear to be at a trough. Data from consultants and Singapore’s URA indicate a bottoming out of office rentals in 4Q12/1Q13. Singapore office rents: grade-A and grade-B islandwide (SGD/sq ft)

Source: CBRE

In past cycles, the median rental increase measured from the bottom of a typical rental cycle has been 22%. While we have a more cautious view on rental growth demand for this cycle given: 1) the availability of quality decentralised office space, 2) the considerable amount of vacant stock in the CBD downtown core, and 3) a significant increase in new supply from 2016, we still forecast rental growth of 11% for grade-A office rentals from end-2012 to end-2014. For further details on the outlook for the Singapore office real-estate market, please see our report on Pan-Asia Real Estate Investment Trusts, 2014: The big unit-price drivers, published on 14 January 2014.

Mixed-use site at Yishun Central Barely a month later, FCL again grabbed the headlines with a SGD1.43bn bid for a mixed-use land parcel at Yishun Central. This translated into a land cost of SGD1,077/sq ft ppr for the 41,084.9sqm site, which has a maximum permissible GFA of 123,254.7sqm. This was 47.4% higher than the 2nd-highest bid, which again came from Far East Organization. Location of land parcel at Yishun Central

Source: Housing Development Board

The site sits on the current Yishun bus interchange. Next to the Yishun MRT station, it will be integrated with the future bus interchange. Besides the transport connectivity, more importantly, the land parcel is also next to the Northpoint shopping centre, owned by FCT. Slated for residential and commercial use, the site will yield around 900 residential units (with an estimated saleable area of 720,000 sq ft) and 330,000 sq ft NLA of retail space. The retail component will likely be integrated with the existing Northpoint. The latest appraised value of Northpoint stands at SGD638m, or SGD2,707/sq ft on its NLA of 235,653 sq ft. The closest condominium project in the vicinity is the 656-unit Eight Courtyards, a JV between FCL and Nam Hee Contractor which will be completed in 2014 and has already been fully sold at an average ASP of SGD807/sq ft. Only two sub sales have taken place, at an average of SGD969/sq ft. We note, however, that Eight Courtyards is more than 1km away from the Yishun MRT station, and a good-sized premium is typically placed on units near an MRT station and other conveniences such as a shopping centre.

0

5

10

15

20

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

Grade A Grade B Islandwide

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/Pan-Asia_Real_Estate_Investment_Trusts_140114.pdf#page=1


25 February 2014

- 15 -

For an idea of this “convenience premium”, we compare CapitaLand’s Bedok Residences and FCL’s Flamingo Valley in the east of Singapore. Bedok Residences is directly above Bedok Mall and the Bedok MRT station/upcoming bus interchange, while Flamingo Valley is just over 1km away. As of end FY13, 560 out of 583 units of Bedok Residences had been sold at an estimated average ASP of SGD1,339/sq ft, while 374 out of 393 units of Flamingo Valley had been sold an SGD1,222/sq ft. The “convenience premium” in this case was almost 10%, and we believe might have been greater if not for the fact that Flamingo Valley is freehold, as well as situated in the popular Siglap private residential enclave. We believe that the Yishun Central project will be launched close to the end of 2014 or early 2015 at about SGD1,450/sq ft, close to break-even, and that the greater prize in this project will be the retail project component on account of synergies with the existing Northpoint. Positive on retail, negative on residential. Our view on the outlook for Singapore’s shopping-mall market remains fairly positive, as we believe the new upcoming supply is well-known and well-supported by strong rates of pre-leasing. At the residential end, however, we believe the physical delivery of 204,000 new units over the 2013 to 2016 will continue to exert pressure on home prices. For further details on the outlook for the Singapore retail and residential real-estate markets, please see our respective sector reports –Fundamentals slightly better, unit prices now much lower, published on 11 September 2013, and Turning more positive, published on 7 February 2014.

Has bidding behaviour changed? FCL tender participation pre- and post-TCC We reviewed government land-sale (GLS) tenders for residential and commercial sites awarded in 2012 (pre-TCC) and 2013 (TCC gained control of FCL in January 2013). Details of these sites are in Appendix B. FCL appears to be one of the most consistent participants in GLS tenders, taking part in almost ¾ of the bids in 2012 and more than 80% in 2013. FCL won 3 tenders each in both 2013 and 2012 (some tenders won as part of a consortium). In 2013, other than the 2 above tenders, FCL also won the Fernvale Close site for SGD257m, or SGD533/sq ft, 2.8% and 7.0% higher than the 2nd and 3rd bidders. In 2012, FCL won tenders for plots at Bedok South (eCo), Tampines (Q Bay), and Woodlands (Twin Fountains). While bids were just marginally above the 2nd-placed bidders, divergences in market perception of the value of the sites could also be seen, with FCL’s bids 8.8% to 46.2% above the 2nd runner-up bids. On the other hand, for sites not won, the variance of winning bids versus FCL bids were not markedly different in the 2 years, in our opinion. On average, FCL bids were 19.7% and 18.5% below the winning bids in 2013 and 2012, respectively.

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/Singapore_Retail_REITs_130911.pdf#page=1



25 February 2014

- 16 -

Hospitality: clear asset-light growth

Through its hospitality arm, FCL owns and/or manages 49 properties with a total of 7,914 rooms as at end FY13. Property brands include the gold standard Fraser Collection (comprising Fraser Suites, Fraser Place, and Fraser Residences), Modena 2nd-tier serviced residences, and Capri by Fraser hotel residences. FCL owned apartments as of end FY13*

Property

FCL effective interest

(%) # of

rooms Occupancy

Average Daily Rate

(SGD equiv)

Property Value

(SGDm)Australia Fraser Suites Sydney 80.5% 201 89% 313 116 Fraser Place Melbourne 100% 112 75% 176 33 Fraser Suites Perth 87.5% 236 65% 335 146 China Fraser Suites Beijing 100% 357 82% 169 236 Indonesia Fraser Residence Sudirman, Jakarta 100% 108 93% 167 41 Philippines Fraser Place Manila 100% 89 86% 212 28 Singapore Fraser Place Singapore 100% 163 76% 366 232 Fraser Suites Singapore 100% 255 82% 331 357 Capri by Fraser, Singapore 50% 313 77% 248 101 United Kingdom Fraser Place Canary Wharf 100% 97 80% 289 71 Fraser Suites Queens Gate 100% 106 11% 292 108 Fraser Suites Kensington 100% 69 84% 490 201 Fraser Suites Glasgow, Scotland 100% 99 78% 134 20 Fraser Suites Edinburgh, Scotland 100% 75 84% 215 26 Total 2,280 1,716

(FCL's effective share) 1,625


* FCL also purchased an office building in Brisbane worth AUD37.2m towards the end of FY13, which it intends to reconfigure into a 240-unit serviced apartment

FCL managed apartments as of end FY13 Property # of roomsBahrain Fraser Suites Bahrain 91 China Fraser Residence CBD East Beijing 228 Fraser Suites Chengdu 360 Fraser Suites Guangzhou 332 Fraser Suites Nanjing 210 Fraser Suites Top Glory, Shanghai 186 Fraser Residence Shanghai 324 Modena Putuo, Shanghai 348 Fraser Place Shekou 232 Fraser Suites Suzhou 276 Modena Jinjihu Suzhou 237 Modena Heping Tianjin 104 China subtotal 2,837 France Fraser Suites Harmonie, Paris La Defense 134 Fraser Suites Le Claridge- Champs Elysees, Paris 110 France subtotal 244 Hungary Fraser Residence Budapest 51 India Fraser Suites New Delhi 92 Japan Fraser Residence Nankai Osaka 114 Malaysia Fraser Place Kuala Lumpur 315 Qatar Fraser Suites Doha 138 Singapore Fraser Place Fusionopolis 50 Fraser Residence Orchard 72 Singapore subtotal 122 South Korea Fraser Suites Insadong, Seoul 213 Fraser Place Central, Seoul 254 Fraser Place Namdaemum 252 South Korea subtotal 719 Turkey Fraser Place Anthill Istanbul 116 Thailand Fraser Suites Sukhumvit, Bangkok 163 United Arab Emirates Fraser Suites Dubai 180 United Kingdom Fraser Residence Bishopgate 26 Fraser Residence Blackfriars 12 Fraser Residence Monument 14 Fraser Residence City, London 22 Fraser Residence Prince of Wales Terrance 18 United Kingdom subtotal 92 Vietnam Fraser Suites Hanoi 185 Capri by Fraser, Ho Chi Minh City 175 Vietnam subtotal 360 Total 5,634

Source: Company

Growing through management contracts The hospitality business was started with Frasers Suites and Frasers Place in Singapore in 1998. It took FCL more than 10 years to add the last 7,000 rooms to its name as it built up its reputation and scale in the business, but under secured management contracts, it will soon be managing an additional 7,100 apartments over the next 3 years. FCL is also in discussions with TCC to acquire or manage its hospitality assets outside of Thailand (almost 4,000 rooms).


25 February 2014

- 17 -

Apartments owned and managed since inception

Source: Company, Daiwa estimates

With management contracts, FCL earns for each serviced residence managed a basic management fee (2-3% of total revenue, based on industry standards) as well as an incentive management fee (5-10% of gross operating profit). Management has stated that this asset-light approach is the preferred strategy for the hospitality business. Research by the Travel Intelligence Network estimates a total stock of 655,911 apartment units in 8,802 locations worldwide as at end-2013. It noted that this was up 9.4% from end-2011, but supply from the top-15 global suppliers of serviced apartments was up only 1.7%, suggesting significant additional units (49,268) were from smaller independent owner/operators. We believe this supports a positive expansion outlook for FCL’s hospitality management business, as these smaller players lack scale and are more likely to find outsourcing of management an appealing option. Change in global serviced apartment stock (2011 to 2013)

2011 2013 Change

(2011 to 2013) RateTotal serviced apartment stock 599,187 655,911 56,724 9.5%Stock of top-15 providers 438,606 446,062 7,456 1.7%Stock of other providers 160,581 209,849 49,268 30.7%

Source: Travel Intelligence Network (The Global Serviced Apartments Industry Report 2013/14), Daiwa estimates

Hospitality REIT listing in the offing FCL looks set to further lighten its balance sheet with a hospitality REIT. It announced in early February that it had submitted a new listing application to the SGX for review, although it also noted that deal terms had yet to be finalised and the listing of the REIT would be subject to market conditions and certain other approvals. FCL’s hospitality portfolio was valued at SGD1.6bn as at end-FY13. The closest listed comparable we see for FCL’s hospitality REIT would be the Ascott Residence Trust (ART) [ART SP, SGD1.165, Hold (3)], sponsored by The Ascott Limited (a subsidiary of CapitaLand). As

at end-FY13, ART held a portfolio of more than 8,600 units in 81 serviced residences across Asia Pacific and Europe, with a total asset size of SGD3.4bn and a market capitalisation of USD1.4bn. According to FCL, TCC owns 40 hotels and 5 apartments with a total of 10,344 rooms as at the end of 3Q13, with an additional 5 hotels in its pipeline. Some 27 of these hotels and apartments are in Thailand, and will remain under TCC for now. Outside of Thailand, FCL has the right of first refusal from TCC over opportunities to invest in invest in, develop, and/or manage TCC Land’s assets, and it appears likely that some of TCC’s assets will be injected into the REIT to give it a better scale. TCC Land: portfolio of hotels outside Thailand as of end 2013

Hotel Country City # of keys 1 Intercontinental Adelaide Australia Adelaide 367 2 Hyatt Hotel Canberra - A Park Hyatt Hotel Australia Canberra 252 3 Novotel Rockford Darling Harbour Australia Sydney 230 4 Le Meridien Angkor, Siem Reap Cambodia Siem Reap 420 5 Sakura Hotel China Kunming 235 6 Bank Hotel China Kunming 285 7 ANA Crowne Plaza Kobe Japan Kobe 593 8 The Grand Luang Prabang Laos Luang Prabang 78 9 Westin Kuala Lumpur Malaysia Kuala Lumpur 443 10 InterContinental Hotels & Resorts Singapore Singapore 403 11 The Park International Hotel UK London 172 12 Plaza Athenee New York USA New York 142 13 Melia Hanoi Vietnam Hanoi 306

Total # of keys 3,926

Source: TCC Land, agoda.com

412

412

412

412 907

907

1,24

2

1,55

0

2,12

9

2,59

2 4,42

7

4,79

7

5,53

6 7,06

7

7,09

8

7,91

4 10,2

81 12,6

48

15,0

14

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

F

FY15

F

FY16

F


25 February 2014

- 18 -

Valuation

Our six-month target price of SGD1.84 is based on a 30% discount to our SOTP valuation, as set in the following table. Our current valuation methodology for the Singapore developers is to apply a 20% discount to SOTP (ie, 1SD below their mean-price-to-SOTP multiple). We apply an additional 10% discount to FCL’s SOTP valuation, to factor in its free-float issues. FCL: RNAV breakdown (2014E)

FY14E RNAV

(SGDm) FY14E RNAV (SGD/share)

% of gross asset value

Residential Singapore 1,843 0.64 18.2%Australia 736 0.25 7.3%China 731 0.25 7.2%Others 488 0.17 4.8%

3,798 1.31 37.6%Retail FCT 710 0.25 7.0%Non-REIT 1,353 0.47 13.4%Revaluation surplus on held-for-sale assets 79 0.03 0.8%

2,142 0.74 21.2%Office / Industrial FCOT 229 0.08 2.3%Non-REIT 2,191 0.76 21.7%Revaluation surplus on held-for-sale assets 13 0.00 0.1%

2,434 0.84 24.1%Hospitality Owned properties 1,696 0.59 16.8%Revaluation surplus on held-for-sale assets 42 0.01 0.4%

1,739 0.60 17.2%

Gross Asset Value 10,113 3.50 100.0%Add: Value of management business 552 0.19 Less: Net debt (end FY14E) (3,083) (1.07)RNAV 7,582 2.62


Residential. We value FCL’s residential businesses at their estimated book values plus the net present values of their residential profit as at the end of FY14 for FCL’s properties in Singapore, Australia and China. We have used discount rates of 8% for Singapore, 9% for Australia, and 12% for China, based on our assessment of the risks and required returns in these markets. Retail and office/industrial (Non-REIT) and hospitality. FCL’s investment properties are valued at their FY14E attributable gross valuations, derived from their end-FY13 valuations carried out by independent valuers and our assumptions for net property income growth for the period. Properties held for sale are valued at the lower of cost or net realisable value, with a one-time revaluation surplus included where applicable, based on the disclosed independent appraisals in FCL’s listing introductory document.

The resultant FY14E effective net cap rates are:

• 5.6% for the retail portfolio,

• 3.8% for the office/industrial portfolio (mainly due to very low property income at 51 Cuppage Road, which is slated for redevelopment; excluding 51 Cuppage Road, the effective net cap rate is 7.2%), and

• 5.1% for the hospitality portfolio. Retail and office/industrial – REIT. We value FCL’s stakes in FCT using Daiwa’s DDM-derived target price of SGD2.10/share, and its stake in FCOT using FCOT’s market price of SGD1.25/share (as at 24 February 2014). FCL: Daiwa’s GAV (excl value of management business) breakdown (end of FY14E)


Management business. We value FCL’s management business at 13x our FY14 EBIT of SGD42.4m. This multiple is derived from the average one-year forward EV/EBIT multiple for ARA Asset Management (ARA) (Not rated) since it was listed in 2007 (13.8x, as at the end of January 2014, which we have rounded down). We believe ARA is the closest listed comparable for this business. ARA, which is an affiliate of Cheung Kong Group, is an Asia real-estate fund-management company focused on the management of publicly listed REITs in Singapore, Hong Kong and Malaysia, and private real-estate funds that invest in Singapore, Hong Kong, Malaysia and China. We subtract our forecast net debt of SGD3.1bn (see our RNAV table above) as at the end FY14, to derive our SOTP estimate of SGD2.62/share. A 44% discount to SOTP We note that FCL is trading currently at a 44% discount to our SOTP, which is a wider-than-peer discount. CAPL and CIT are trading at 28% and 34% discounts, respectively, to Daiwa’s SOTP estimates.

Residential -Singapore

18.2%

Residential -Australia

7.3%

Residential -China7.2%

Residential -Others4.8%

Retail21.2%

Office/Industrial24.1%

Hospitality17.2%


25 February 2014

- 19 -

Singapore developers: share price-to-SOTP (x)

Source: Daiwa

CAPL: GAV breakdown


CDL: GAV breakdown


A 35% discount, even in a bear Singapore residential case We estimate a book value on completion of SGD145m (or SGD0.05/share) for unsold units at its projects completed in FY13 and projects under development as at end-FY13, and expect a book value of SGD892m (SGD0.31/share) for its landbank at Fernvale Close and Yishun Central by end-FY14. In other words, even if we assume that it is not able to sell one more residential unit in Singapore for FY14, and disregard the entire value of its residential landbank, this would bring our SOTP valuation down to SGD2.26/share, a level to

which FCL still currently trades at a 35% discount. Indeed, at the current share price of SGD1.475, an investor effectively gets the entire Singapore, Australia, and China residential development businesses for nothing, debt-free. Highest yield among the major Singapore developers We forecast a dividend payout of SGD0.052/share, or SGD150m, for FY14-16, based on the lowest dividend payout by FCL since FY10. FCL: dividend payout

Source: Company, Daiwa forecasts

While FCL does have large projects on hand, namely the Yishun Central and Cecil St/Telok Ayer developments, we believe its balance sheet will be very healthy over our forecast period of FY14-16, on the strength of its residential pre-sales. Also, its cash flow could be further supplemented if it is able to successfully list its hospitality REIT. FCL: net debt-to-equity ratio


At SGD0.052/share in dividends, we expect FCL’s FY14E dividend yield to be the highest among the major residential developers in Singapore. And, given that we believe its balance sheet will be very healthy for FY14-16E, we see potential further upside to dividends. We note that FCL paid SGD0.069/share in dividends

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Jan-

05

Jun-

05

Nov-

05

Apr-0

6

Sep-

06

Feb-

07

Jul-0

7

Dec-

07

May

-08

Oct

-08

Mar

-09

Aug-

09

Jan-

10

Jun-

10

Nov-

10

A pr-1

1

Sep-

11

Feb-

12

Jul-1

2

Dec-

12

May

-13

Oct

-13

CapitaLand CDL

FCL: 0.56x

CapitaLand Singapore

15.4%

CapitaLand China23.3%

CapitaMalls Asia

28.9%

Ascott8.0%

Regional investments

16.2%

Corporate (including

treasury cash)8.2%

Residential (including landbank)

37.9%

Commercial (investment properties)

48.2%

Millennium and Copthorne Hotels plc

13.8%

Others0.1%

0%

20%

40%

60%

80%

0

50

100

150

200

250

FY10 FY11 FY12 FY13 FY14E FY15E FY16E

Dividend payout (SGDm) (LHS) Payout ratio (on PATMI) (RHS)Payout ratio (on core PATMI) (RHS)

0%

10%

20%

30%

40%

50%

FY14E FY15E FY16E

Net debt-to-equity


25 February 2014

- 20 -

in FY13. At this level, its dividend yield would be the highest in the industry, by an even wider margin. FCL: FY14E dividend yield forecasts


Note: * Based on Daiwa forecasts for CAPL, CDL, and FCL, and on Bloomberg consensus estimates for Keppel Land (KPLD) and UOL Group (UOL); potential FY14E yield based on SGD0.069/sh

Valuation: major Singapore residential developers (MSCI constituents) and FCL

Trading PBR PER ROE Yield

Company Ticker

Market cap

(USDbn)

Share price (local ccy) as of 24-Feb-14 Rating

Target Px

Upside / (downside)

Daiwa’sSOTP

prem/(disc) to SOTP

(%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15ECAPITALAND LTD CAPL SP 9.6 2.85 Outperform 3.20 12.3% 3.95 -27.8% 0.71x 0.68x 10.5x 9.8x 7.0% 7.1% 3.2% 3.3%CITY DEVELOPMENTS LTD CIT SP 6.6 9.25 Buy 11.40 23.2% 14.05 -34.2% 1.06x 1.00x 12.6x 12.3x 8.7% 8.3% 2.3% 2.4%FRASERS CENTREPOINT LTD FCL SP 3.4 1.48 Buy 1.84 24.7% 2.62 -43.7% 0.65x 0.61x 7.9x 9.1x 9.0% 6.9% 3.5% 3.5%KEPPEL LAND LTD KPLD SP 3.9 3.24 NR 0.72x 0.68x 11.4x 10.3x 6.1% 6.4% 3.0% 3.2%UOL GROUP LTD UOL SP 3.7 5.90 NR 0.68x 0.65x 12.2x 12.1x 5.6% 5.5% 2.4% 2.5%


0%

1%

2%

3%

4%

5%

CAPL CDL FCL KPLD UOL

FY14E yield* Potential FY14E yield


25 February 2014

- 21 -

Catalysts

Well-managed release of more free float The available free float of 12.1% does not provide sufficient liquidity for investors. A well-timed and orderly release of more float, or an outline of intended float management, should help to narrow its valuation discount relative to its peers. As FCL’s largest shareholder, we do not doubt that it is in TCC’s interests to help ensure that FCL is not unfairly discounted by the market. We calculate that at current market prices, TCC is still sitting on some profit from the takeover, which should make the sale of shares easier. TCC P&L on F&N deal

Stake Cost

(SGD/share)Cost

(SGDbn)F&N shares acquired from OCBC and open market 44.1% 8.98 5.70 F&N shares acquired through takeover offer 46.3% 9.55 6.37 Cost of takeover 90.3% 9.27 12.07

Stake Value

(SGD/share) Value

(SGDbn) F&N - FY12 final dividend 90.3% 0.12 0.16F&N - FY13 interim dividend 90.3% 0.035 0.05F&N - Return of capital 90.3% 3.28 4.28Sale of F&N shares 0.17F&N - FY13 final dividend 87.9% 0.12 0.15F&N shares (Market price as of 24 Feb 2014)) 87.9% 3.41 4.33FCL - Final dividend 87.9% 0.02 0.04FCL shares (Market price as of 24 Feb 2014)) 87.9% 1.475 3.75Value extracted plus current value of holdings 12.93TCC profit / (loss) excl transaction costs 0.87


We also note that FCL shares are also currently trading at a 31% discount to book and a lower P/NAV versus the other major local developers, which should heighten the stock’s attractiveness to potential investors. P/NAV of major Singapore developers

Share price (local ccy) as of 24th Feb

‘14

Latest reported NAV

P/NAVAs at (CY) SGD/shareCapitaLand 2.85 4Q13 3.78 0.75City Developments 9.25 3Q13 8.00 1.16 FCL 1.48 4Q13 2.15 0.69Keppel Land 3.24 4Q13 4.52 0.72UOL 5.90 3Q13 8.51 0.69

Source: Bloomberg, Daiwa Research

Reaping the benefits of its links to TCC It is well known in the market that TCC has substantial property assets. While it has been widely publicised that discussions on possible tie-ups between TCC’s property arm and FCL are ongoing, and are presumably more advanced in terms of the hospitality side of the business, actual agreements being reached

and detailed would provide investors with better visibility on the business-growth potential and benefits of FCL having TCC as a parent. Becoming a Thailand property play? FCL entered Thailand in 2004 via a joint venture with Krungthep Land (KLand, not listed) to develop The Pano, a luxury condominium on Rama III Road in Bangkok. In 2005, FCL purchased a one-third stake in KLand, which it later raised to 40.5%. FCL also has serviced-apartment operations in Thailand, but the country has always been a minor market for FCL. Less than 1% of FCL’s assets are in Thailand, as foreign developers are typically not allowed majority ownership in the country. With TCC behind FCL as its majority shareholder, that hurdle is now effectively cleared. TCC has a landbank of more than 19,400 hectares primarily in Thailand, amassed over more than 30 years. Management has also noted that TCC could provide a stepping stone to greater market access in Indochina. More clarity on how FCL and TCC can work together should be constructive for FCL’s share price. We also note that greater exposure to Thailand property would be quite uncommon among the Singapore-listed property developers. While our Thailand property analyst, Khun Phannarai Tiyapittayarut from Daiwa’s alliance partner Thanachart Securities, currently has an Underweight call on the Thailand property sector on account of the political situation and current weak economy (please see Punished by politics, published on 3 February 2014), she also notes that if the political situation eases, consumer confidence should improve and some buyers should come back to the market. In the longer term, the Thai property market continues to be backed by structurally positive demographics, and FCL could have an edge in this market with TCC’s local expertise and massive landbank (in contrast to most local developers, which do not maintain a landbank). Successful listing of hospitality REIT As we earlier noted in this report, FCL has submitted a listing application to the SGX for a hospitality REIT. A successful listing of FCL’s hospitality assets would free up capital and further grow FCL’s assets under management, and supplement its fee income. Based on its effective portfolio asset size of SGD1.6bn as at the end of FY13, and assuming a debt-to-asset gearing of 30% on the portfolio, we estimate that FCL could raise almost SGD0.7bn while retaining a 40% interest in the REIT. Using FCT’s REIT management fee structure of 0.3% of deposited property and 5% of

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20140203th_ThailandPropertySector.pdf#page=1


25 February 2014

- 22 -

net property income, we believe the hospitality REIT could increase FCL’s total fee income by over SGD12m a year. While the market’s enthusiasm for REITs may have ebbed since talk of the Fed’s tapering started in May 2013, we expect FCL to be able to garner sufficient investor interest given the quality of its hospitality assets. It would be a positive if the spin-off were successful. Added assets from TCC could provide upside to our fee-income projections by raising the size of the portfolio. Resilient Singapore residential sales, with no policy threat While we have seen the market start to soften in 2H13, during which monthly sales started to slow, likely as a consequence of the Monetary Authority of Singapore’s implementation of the total debt servicing ratio (TDSR), we continue to believe that the record pipeline of residential units being completed will exert downward pressure on home prices. We also note that the market’s take-up rate of new project launches has remained resilient (94.1% for 2013), while the total unsold inventory of 13,500 units, as at the end of 4Q13, is not yet a concern, in our opinion. Some in the market have also suggested that the government of Singapore could roll back property-price cooling measures, which would be a positive risk to the sector, although we doubt this will happen anytime soon, as we believe the government would not want to potentially signal to the market that it is “safe” to resume buying property.

Risks

Inability of the majority shareholder to manage float, insufficient float, or overhang from the sale of shares As we have highlighted earlier in this report, we do not believe the current available free float provides adequate liquidity for investors and is an impediment to the market’s interest in the stock. As such, the main risk to our call would be if more float is not released in a timely manner.

Conversely, however, we also note a potential overhang if too many shares were released at once and the market is not able to digest them. The takeover of F&N was completed in January 2013, financed by lenders happy to take on Asian exposure. A few months later, however, markets started bracing for the Fed’s tapering. Thai Beverage saw its credit ratings downgraded by Moody’s and Standard & Poor’s, with the latter cutting its long-term corporate credit rating to junk status (BB+ from BBB-) in December 2013, before ratings were withdrawn at Thai Beverage’s request. While Thai Beverage’s net debt-to-EBITDA ratio declined to 2.43x as at end-3Q13, post a capital reduction by F&N, Moody’s notes that this leverage measure stood at less than 1x historically for Thai Beverage. It is possible that Thai Beverage could unload its shares to further deleverage its balance sheet. At the same time, investors may also worry that TCC could unload its shares to the public subject to its own cash requirements, which are even more opaque than those of Thai Beverage, given that it is a private company. Without further action or news on the release of float, the uncertainty surrounding the potential actions of the controlling shareholders would not be constructive for FCL’s share price. Inability to replenish Singapore landbank FCL currently has less than 2 years’ worth of units in its Singapore landbank; it has to continue making acquisitions, likely through tenders for government land sales, to remain a relevant local residential developer. The tenders are competitive, and it is possible that FCL will not win any bids or enough bids to adequately replenish its landbank. It would also be negative if the company has to put in overly high bids to win sites. Sharp decline in Singapore residential prices and new government measures With home prices set to decline further in 2014, we do not expect further cooling measures from the government, although it is possible that minor policy tweaks may be rolled out, which could be negative for home prices in the short term. An external shock, such as a sharp rise in interest rates and a liquidity crunch, could also put further pressure on the market and result in a sharper-than-expected decline in residential prices.

This report uses credit ratings assigned by Moody’s, Standard & Poor’s and Fitch, which are not registered with Japan’s Financial Services Agency pursuant to Article 66, Paragraph 27 of the Financial Instruments and Exchange Act. Investors should read the related attachment for information on ratings assigned by unregistered rating agencies.


25 February 2014

- 23 -

Appendix A

Sector fundamentals: worsening, but far from a disaster

Since our sector report on 16 April 2013, Singapore property developers: So why are we still negative?, the state of the residential market remains as uncertain as ever. This is not to say that it is in bad shape, but rather that developments over the past 9 months have not improved the clarity over how the 2 major risk factors that we highlighted, inventory build-up and a record pipeline of deliveries, will play out. Inventory rising First, the level of inventory in the sector began to rise in 2H13, but the total unsold inventory of about 13,500 units as at the end of 4Q13 is not yet a concern, in our opinion. Singapore private residential sector: unsold inventory of projects already launched

Source: Singapore URA, Daiwa

Total debt servicing ratio hits home The major factor behind the inventory increase in 2H13 was the slowdown in monthly home sales in 2H13, probably a direct consequence of the Monetary Authority of Singapore’s implementation of a total debt servicing ratio (TDSR), with effect from 29 June 2013. Technically, the government did not intend the TDSR to be another property-cooling measure (the government had implemented 7 sets of measures before this announcement), but imposing a limit of 60% of total monthly debt obligations on gross monthly income (the TDSR) for all borrowers has been

the major factor in the slowdown of home sales from July 2013. Ironically, the TDSR, a non-cooling measure, has probably had the greatest impact on the physical market to date. Singapore: monthly private home sales by developer (units)

Source: Singapore URA

We expect volumes to fall sharply in 2014 With housing prices clearly softening, going by the run-rate of home sales in 2H13, units launched and sold by developers is likely to decline sharply for 2014. From an all-time high of 22,200 units sold in 2012, to 15,000 units sold in 2013 (which would be in line with annual sales of 14,700 to 16,300 for 2009-11), we now forecast home sales of about 10,000 units for 2014 and 2015 (from 13,800-14,900 previously). In reality, home sales are returning to normal We regard annual home sales of 10,000 as a return to normal because the robust transaction volume in 2009-13 is one clear manifestation in Singapore of the Fed’s quantitative easing, which has also led to record home prices and a steady raft of government cooling measures. The record number of private home sales over the 200-13 period also reflects the government’s policy of injecting supply (through the land sales programme) to moderate price rises and to address the structural imbalance (a sharp rise in the average household size from 3.8 persons in 2004 to 4.4 persons in 2012) created by a generous immigration policy from 2006-12. We do not expect home sales to collapse because developers that won government land sales (GLS) tenders in 2013 (and those winners in 2012 that have not yet launched their projects for sale) will have to launch them eventually in 2014.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

4Q06

2Q07

4Q07

2Q08

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

2Q12

4Q12

2Q13

4Q13

Unsold completed units Launched and unsold units Launch ready and unsold units

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Oct

-13

Nov-

13

Dec-

13

Units launched Units sold



25 February 2014

- 24 -

Singapore: annual private residential launches and sales by developers

Source: Singapore URA, Daiwa forecasts

Pipeline has increased slightly

The scheduled delivery of new housing units, both public and private, until 2016 has not changed much (increasing by only about 4,000 units as at the end of 2013) since our report in April 2013. The 204,000 units scheduled for delivery for 2013-16E represent about 17% of Singapore’s total housing stock as at the end of 2012. There could be minor tweaks in the number of units actually delivered for a few projects each year (in fact, the actual number of private units completed in 2013 was 13,150, and not the 15,824 units mentioned on the Minister for National Development’s, Khaw Boon Won, blog), but we believe any minor slips would matter little because the 2014-16 period is still shaping up to be 3 consecutive years of deliveries that would rival the overbuilding in Singapore that occurred during the Asian financial crisis. Some of the deliveries scheduled for 2016 could slip into 2017, potentially creating another year of abundant deliveries. Supply of new residential units by year of delivery

Source: Singapore National Development Minister Khaw Boon Wan's blog, Housing Matters

Note: EC = executive condominium

Singapore residential: unit deliveries (private and public housing)

Source: Singapore URA, Housing Development Board (HDB), Daiwa forecasts

Unsold pipeline is highly manageable Fortunately, about 66% of the private supply pipeline of over 90,000 units has already been sold, helped greatly by the robust home sales in 2009-13, so this does not appear to be a worry. Viewed another way, there are slightly over 30,000 units in the pipeline that are unsold and annual sales of 10,000 units for 2014-16 would almost perfectly absorb the unsold units. Of course, this simplistic calculation does not take into account new residential developments released by the government through the confirmed list in its semi-annual GLS programme. But we believe the number of confirmed list units announced in subsequent periods will be manageable as the peak of the supply in the system will probably occur around 2015-16 and the release of too many GLS units in the coming years could lead to a structural oversupply. Singapore private residential sector: pipeline (units under construction and those that have received written or provisional permission)

Source: Singapore URA

0

5,000

10,000

15,000

20,000

25,000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

E

2015

E

2016

E

Units launched Units sold

13,608

28,741 26,492

42,318 1,659

1,961 3,519

4,955

15,824

19,302 19,727

26,355

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2013 2014 2015 2016

Public housing EC Private

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

E

2016

E

Private ECs HDB

0

20,000

40,000

60,000

80,000

100,000

4Q91

4Q92

4Q93

4Q94

4Q95

4Q96

4Q97

4Q98

4Q99

4Q00

4Q01

4Q02

4Q03

4Q04

4Q05

4Q06

4Q07

4Q08

4Q09

4Q10

4Q11

4Q12

4Q13

Units in pipeline Unsold pipeline


25 February 2014

- 25 -

In the face of new deliveries, rental market remains uncertain One area where the new deliveries in 2014-16 will have an impact, regardless of their sales status, is the rental market, particularly the private residential market, as these deliveries are likely to exceed 19,000 units annually (according to Khaw Boon Wan’s blog) – and we suspect that not all of the private home sales over the 2009-13 period were for owner occupation (we believe a considerable number of the purchases were for investment, as the average annual number of units sold, at 16,806 for 2009-13, was roughly twice the annual average from 1996-2008). Singapore private residential: vacant units and vacancy rate


Vacancies could rise to 8% by end-2016 We estimate, using a simple regression equation (regressing the historical change in occupied units on the change in housing stock using data from 1988 to 2013) modified to take into account our own adjustments for the potential impact of a structural increase in the proportion of investment properties in the housing stock, that the private market vacancy rate could rise to 8% by the end of 2016, from 6.2% at the end of 2013. But highly dependent on future foreign population, GDP growth An 8% vacancy rate clearly indicates it is a renter’s market, but this would probably be slightly better (for landlords) than when the rental market was in the doldrums from about the end of 1997 to the middle of 2005. The actual vacancy rate would probably depend on the rate of growth of the foreign professional population and Singapore’s GDP growth in the coming years. The delivery of public housing units is unlikely to create vacancy issues because these flats cannot be rented out entirely by owners before their 5-year minimum occupation period. However, the delivery of

these units could have an impact in the private market as some of the occupants of the newly delivered HDB flats could have been renting out private units. There are also no major restrictions on subletting bedrooms in new HDB flats (as long as the HDB flat is at least a 3-room flat), so some newly delivered HDB flats with rooms to sublet could compete with some rental units in the HDB resale market, or even in some instances in the private market.

Home prices: a more moderate decline

Still wary about the physical market We believe the fundamental risks, namely: a drop in the transaction volume leading to rising inventory levels and elevated delivery schedule for 2014-16 (and possibly until 2017), still point to a multi-year decline in home prices. We forecast price declines of 11-15% from end-2013 to end-2015 However, we are moderating our forecasts for price declines, from the end of 2013 to the end of 2015, to 11% for the high-end segment and 15% for the mass-market segment. Our previous forecasts called for declines of 20% for the high-end segment and 18% for the mass-market segment over the period from the end of 2012 to the end of 2015. We are focusing broadly on 2 key segments in Singapore’s private residential market: the high-end segment and the mass-market segment. We define the high-end segment as properties in the URA’s core central region (postal districts 9, 10, 11, downtown core and Sentosa). Properties in the core central region tend to be the most expensive in Singapore and have traditionally been popular with foreign buyers. We define the mass-market segment as properties in the URA’s outside central region, geographically at the periphery of Singapore’s downtown core and shopping belt. Private properties in the outside central region are typically located near mass transportation nodes and public-housing estates, and tend to be the most affordable in Singapore. The reason for our more optimistic outlook on prices is that their resilience in 2013 was stronger than expected, suggesting that sellers and property developers were in no hurry to cut prices, even in 2H13. Previously, we forecast prices in the high-end segment to decline by 5% YoY and the mass-market segment to decline by 1% YoY for 2013.

0

2

4

6

8

10

0

5,000

10,000

15,000

20,000

25,000

30,000

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

E

2016

E

Vacant units (LHS) Vacany rate (%) (RHS)


25 February 2014

- 26 -

Mass-market segment the big gainer in 2013 In 2013, prices in the high-end segment (using the URA’s median price series for the core central region as a proxy) declined by 1.9% YoY, while prices for the mass-market segment (using the URA’s median price series for the outside central region as a proxy) appreciated by 6.5% YoY. Having outperformed the high-end segment for 3 consecutive years, fuelled by latent demand, the proliferation of shoe-box units, their absolute affordability (for the total outlay and not on a per square foot basis), and the faith of property investors that these units (even those in the suburbs) can be rented out at attractive yields, the mass-market segment is more vulnerable to a price correction, in our view. Singapore private residential: prices by segment (SGD/sq ft)


Cautious, but not excessively pessimistic All in, our top-down view of the residential market suggests that it could hit a rough patch this year, with further QoQ declines in prices, which only began (according to the URA residential index) in 4Q13. Even if inventory levels rise further and home-sales volumes decline sharply YoY for 2014, the pipeline of unsold units does not appear to be an issue to us. The rental market will face a considerable number of new deliveries from 2014-16 and the vacancy rate could rise to 8% by the end of 2016, but over the shorter term (2014 and 2015), we expect only a gradual shift to a renter’s market. Transaction volumes, the state of the rental market, and the rate of price declines are the major uncertainties we see in 2014, but so are the underlying resilience of buyers and sellers and the state of the economy. Shares probably fully discounted After suffering the brunt of the market sell-down, the shares of the property developers now offer strong value, in our view, and have more than discounted the uncertainties in the Singapore physical market. This appendix has been extracted from our recent report, Turning more positive (7 February 2014), in which we upgraded our view of the Singapore property developers to Positive.

Singapore residential: core assumptions

Unit 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016EPrivate (excluding ECs) Units launched by developers units 14,016 6,107 14,103 16,575 17,710 21,478 15,885 12,239 11,813 12,500 Units sold by developers units 14,811 4,264 14,688 16,292 15,904 22,197 14,948 10,403 10,041 11,250 Take-up rate of launches % 105.7 69.8 104.1 98.3 89.8 103.3 94.1 85.0 85.0 90.0 Private housing stock Net supply units 1,448 6,392 8,285 8,754 10,525 8,852 11,750 15,540 17,000 23,000 Net demand units 2,571 4,903 10,520 8,259 7,428 9,963 8,616 12,545 13,911 19,527 Vacancy rate % 5.6 6.1 5.0 5.0 5.9 5.4 6.2 6.9 7.5 8.0 Rents (annual average) Median rental non-landed core central SGD/sq ft/mth 3.43 4.06 3.32 3.69 3.95 4.00 4.08 3.88 3.66 3.65 YoY change % 37.0 18.3 (18.1) 11.0 7.2 1.3 2.0 (5.0) (5.7) (0.3)Median rental non-landed outside central SGD/sq ft/mth 1.76 2.15 1.82 1.99 2.17 2.25 2.29 2.16 2.04 2.03 YoY change % 32.7 22.0 (15.4) 9.5 9.3 3.4 2.1 (5.8) (5.7) (0.3)Capital values (end of year) Median price non-landed core central SGD/sq ft 1,384 1,306 1,282 1,465 1,523 1,536 1,506 1,389 1,347 1,347 YoY change % 32.7 (5.6) (1.8) 14.2 4.0 0.8 (1.9) (7.8) (3.0) 0.0 Median price non-landed outside central SGD/sq ft 613 596 666 765 824 878 935 845 795 795 YoY change % 26.4 (2.9) 11.8 15.0 7.7 6.5 6.5 (9.6) (5.9) 0.0 Yield, non-landed core central (end of quarter) % 3.35 3.57 3.06 3.17 3.13 3.15 3.25 3.25 3.25 3.25 Yield, non-landed outside central (end of quarter) % 3.94 4.14 3.18 3.30 3.20 3.13 2.92 2.98 3.07 3.07 Source: Singapore URA, Daiwa forecasts

Note: EC = executive condominium

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

E3Q

14E

1Q15

E3Q

15E

Outside central region Core central region



25 February 2014

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Appendix B

Sites won by FCL in 2012 and 2013

Sites won by FCL in 2012

S/N Location Use*

Tender Award Date

Number of Bids

FCL bid (SGDm) Bid runner-up (#2)

#2 bid (SGDm)

Variance (#1 vs #2) Bid second runner-up (#3)

#3 bid (SGDm)

Variance (#1 vs #3)

1 Bedok South Avenue 3 R 14-Feb-12 7 346 UOL + Singapore Land

341 1.5% Kingsford Development 301 14.9%

2 Tampines Avenue 10 / Tampines Avenue 1 (Parcel A)

R 21-May-12 3 253 EL Development 242 4.4% CDL 173 46.2%

3 Woodlands Avenue 6 / Woodlands Drive 16 (EC)

R 16-Oct-12 5 150 FEO + China Construction Devt Co

148 1.6% Mezzo Development 138 8.8%

Source: URA, HDB, Daiwa Research

*R = Residential, C= Commercial

Sites won by FCL in 2013

S/N Location Use*

Tender Award Date

Number of Bids

FCL bid (SGDm) Bid runner-up (#2)

#2 bid (SGDm)

Variance (#1 vs #2) Bid second runner-up (#3)

#3 bid (SGDm)

Variance (#1 vs #3)

1 Fernvale Close (Parcel C) R 14-Jun-13 9 257 MCC Land 250 2.8% UOL 240 7.0%2 Cecil Street / Telok Ayer Street C

19-Aug-13 4 924Far East Organization ("FEO") 778 18.8% Mapletree Investments 748 23.5%

3 Yishun Avenue 2 / Yishun Central 1 C + R 9-Sep-13 5 1,429 FEO + Sekisui House 969 47.4% City Developments ("CDL") 930 53.6%




25 February 2014

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Other sites awarded in 2012 and 2013

Other sites awarded in Singapore in 2012

S/N Location Use*

Tender Award Date

Number of Bids Bid winner (#1)

#1 bid (SGDm)

FCL bid placing (#)

FCL bid (SGDm)

Variance (#1 vs FCL)

1 Mount Vernon Road R 16-Jan-12 5 Intrepid Investments Pte Ltd, Sunmaster Holdings Pte. Ltd. and TID Residential Pte. Ltd.

388

2 Jalan Lempeng R 16-Jan-12 8 Multi Wealth (Singapore) Pte Ltd 408 3 333.8 22.2%3 Sengkang West Avenue / Fernvale Road C 20-Jan-12 12 Earth Holdings Pte. Ltd. 328 4 218.6 50.0%4 Florence Road / Simon Lane R 26-Jan-12 11 Hoi Hup Realty Pte Ltd, Investment Focus Pte Ltd and

Oriental Worldwide Investments Inc 195

5 Jervois Road R 8-Feb-12 17 S.L. Development Pte. Limited 119 6 101.1 17.6%6 Upper Serangoon View / Upper Serangoon Road

(EC)

R 6-Mar-12 7 Ho Lee Group Pte Ltd & Evia Real Estate Management Pte Ltd

141 7 93.4 51.5%

7 Hillview Avenue R 7-Mar-12 7 Kingsford Development Pte Ltd 243 8 Punggol Central / Edgefield Plains (EC) R 2-Apr-12 10 Qingjian Realty (South Pacific) Group Pte Ltd 137 8 115.2 18.7%9 Fernvale Lane (EC) R 5-Apr-12 4 Peak Living Pte. Ltd. 245 2 240.4 1.9%10 Elias Road / Pasir Ris Drive 3 R 13-Apr-12 9 Elitist Development 166 5 123.4 34.4%11 Woodlands Avenue 5 / Woodlands Drive 16 (EC) R 7-May-12 5 Hao Yuan Investment Pte Ltd 247 5 186.8 32.2%12 Tampines Avenue 9 / Tampines Avenue 7 (EC) R 14-May-12 6 Singxpress Property Development Pte Ltd, Creative

Investments Pte Ltd and Kay Lim Realty Pte Ltd 234

13 Boon Lay Way R 31-May-12 12 MCL Land Limited 369 14 Pasir Ris Drive 3 / Pasir Ris Drive 10 R 11-Jun-12 5 Capital Development Pte Ltd 211 5 156.4 34.9%15 Buangkok Drive / Sengkang Central R 15-Jun-12 5 White Haven Properties (unit of CDL) 301 2 290.3 3.7%16 Farrer Drive R 27-Jun-12 6 Singland Development Pte Ltd 113 17 Upper Serangoon Road / Pheng Geck Avenue

(Parcel B)

R 4-Jul-12 13 Santarli Corporation Pte Ltd 115 5 109.7 4.7%

18 Tanah Merah Kechil Road / Tanah Merah Kechil Link

R 6-Aug-12 13 Fragrance Group Limited and World Class Land Pte Ltd 285 9 235.0 21.4%

19 Sengkang Square / Compassvale Drive R 10-Aug-12 5 EL Development 383 4 328.0 16.9%20 Bright Hill Drive R 10-Aug-12 6 UVD Pte Ltd 292 2 246.8 18.1%21 Farrer Road / Lutheran Road R 3-Sep-12 15 Far East Soho Pte. Ltd. 46 22 Punggol Way/Punggol Walk (EC) R 6-Sep-12 3 Qingjian Realty (South Pacific) Group Pte Ltd 190 3 175.9 8.0%23 Tai Thong Crescent (Parcel C) R 7-Sep-12 8 Verwood Holdings Pte. Ltd. and Intrepid

Investments Pte. Ltd. 245 3 218.1 12.3%

24 Dairy Farm Road R 25-Sep-12 9 First Shine Properties Pte Ltd and Meadows Bright Development Pte Ltd

244 8 181.2 34.8%

25 Prince Charles Crescent R 25-Sep-12 8 Wingstar Investment Pte. Ltd., Metro Australia Holdings Pte Ltd and Maxdin Pte Ltd

516 4 465.8 10.8%

26 New Upper Changi Road / Bedok Road (Parcel A) R 22-Oct-12 11 Sherwood Development Pte Ltd 435 4 364.8 19.1%27 Sengkang West Way / Fernvale Link (Parcel B)

(EC)

R 12-Nov-12 6 Verspring Properties Pte Ltd 135 6 120.7 11.9%

28 Jalan Jurong Kechil R 22-Nov-12 23 World Class Developments (North) Pte Ltd 74 29 Pasir Ris Drive 3 / Pasir Ris Rise (EC) R 26-Nov-12 10 Hao Yuan Investment Pte Ltd 207 3 202.1 2.4%30 Bishan Street 14 R 3-Dec-12 9 Allamanda Residential Development Pte. Ltd. 505 3 462.0 9.3%31 Punggol Field Walk / Punggol East (EC) R 10-Dec-12 7 Sing Holdings Limited 162 3 143.9 12.7%32 Sembawang Crescent / Sembawang Drive (EC) R 17-Dec-12 8 JBE Holdings Pte Ltd 212 2 210.1 0.9%33 Alexandra Road / Alexandra View (Parcel B) R 17-Dec-12 6 Singland Homes Pte Ltd 333 2 300.1 10.9% Average variance 18.5% Median variance 16.9%




25 February 2014

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Other sites awarded in Singapore in 2013

S/N Location Use*

Tender Award Date

Number of Bids Bid winner (#1)

#1 bid (SGDm)

FCL bid placing (#)

FCL bid (SGDm)

Variance (#1 vs FCL)

1 Ang Mo Kio Avenue 2 / Ang Mo Kio Street 13 R 9-Jan-13 12 Pinehill Investments Pte Ltd 550 8 452.7 21.5%2 Yishun Ring Road / Yishun Avenue 9 C + R 31-Jan-13 13 CEL Property Pte Ltd 212 10 133.1 59.4%3 Jurong West Street 41 / Boon Lay Way (Parcel A) R 31-Jan-13 12 MCL Land (Prestige) Pte Ltd 439 4 418.1 5.0%4 Commonwealth Avenue R 7-Feb-13 3 Intrepid Investments Pte Ltd, Verwood Holdings Pte. Ltd.

and Hong Realty (Private) Limited 563 3 541.9 3.9%

5 Punggol Point C 7-Mar-13 9 Fragrance Group Limited 11 6 Venture Avenue (Jurong Gateway) C 13-Mar-13 9 Sim Lian JV (Vision) Pte Ltd 701 6 573.3 22.3%7 Sengkang West Way (Parcel A) R 12-Apr-13 8 Secure Development Pte. Ltd. 262 3 230.4 13.8%8 Kim Tian Road R 23-Apr-13 11 Harvestland Development 550 8 440.1 25.0%9 Woodlands Avenue 5 / Woodlands Avenue 6

(EC)

R 13-May-13 7 Qingjian Realty (South Pacific) Group Pte Ltd 216 3 191.8 12.6%

10 Anchorvale Crescent (EC) R 31-May-13 6 Qingjian Realty (South Pacific) Group Pte Ltd 246 4 229.0 7.2%11 Faber Walk R 20-Jun-13 18 World Class Land Pte Ltd 157 12 132.2 18.5%12 Coronation Road / Victoria Park Road R 24-Jun-13 12 Athens Residential Development 366 13 Tampines Avenue 10 (Parcel B) R 19-Jul-13 10 MCC Land (Singapore) Pte Ltd 290 5 225.9 28.3%14 Yuan Ching Road / Tao Ching Road (EC) R 2-Aug-13 16 Evia Real Estate (5) Pte Ltd, BBR Development Pte Ltd,

CNH Investment Pte Ltd and OKP Land Pte Ltd 273 10 231.8 17.7%

15 Punggol Drive / Edgedale Plains (EC) R 2-Aug-13 6 Peak Square Pte Ltd 313 16 Punggol Central / Edgedale Plains (EC) R 2-Aug-13 8 Master Contract Services Pte Ltd and Keong Hong

Construction Pte Ltd 156

17 Mount Sophia R 12-Sep-13 9 Hoi Hup Realty Pte Ltd / Sunway Developments Pte Ltd / S C Wong Holdings Pte ltd

442

18 Upper Serangoon View (Parcel B) R 2-Dec-13 8 Kingsford Development Pte Ltd 202 4 166.0 21.5%19 Upper Serangoon View (Parcel A) R 2-Dec-13 8 Kingsford Development Pte Ltd 259 Average variance 19.7% Median variance 18.5%




25 February 2014

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Daiwa’s Asia Pacific Research Directory

Daiwa’s Asia Pacific Research Directory

HONG KONG

Hiroaki KATO (852) 2532 4121 [email protected] Regional Research Head

John HETHERINGTON (852) 2773 8787 [email protected] Regional Deputy Head of Asia Pacific Research

Rohan DALZIELL (852) 2848 4938 [email protected] Regional Head of Product Management

Kevin LAI (852) 2848 4926 [email protected] Deputy Head of Regional Economics; Macro Economics (Regional)

Christie CHIEN (852) 2848 4482 [email protected] Macro Economics (Taiwan)

Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong Research; Head of Hong Kong and China Property

Jeff CHUNG (852) 2773 8783 [email protected] Automobiles and Components (China)

Grace WU (852) 2532 4383 [email protected] Head of Greater China FIG; Banking (Hong Kong, China)

Jerry YANG (852) 2773 8842 [email protected] Banking (Taiwan); Insurance (Taiwan and China)

Leon QI (852) 2532 4381 [email protected] Banking (Hong Kong, China); Broker (China)

Winston CAO (852) 2848 4469 [email protected] Capital Goods – Machinery (China)

Alison LAW (852) 2532 4308 [email protected] Head of Regional Consumer; Consumer (Hong Kong/China)

Jamie SOO (852) 2773 8529 [email protected]

Consumer (Hong Kong/China)

Anson CHAN (852) 2532 4350 [email protected]

Consumer (Hong Kong/China)

Eric CHEN (852) 2773 8702 [email protected] Pan-Asia/Regional Head of IT/Electronics; Semiconductor/IC Design (Regional)

Lynn CHENG (852) 2773 8822 [email protected]

IT/Electronics (Semiconductor)

Felix LAM (852) 2532 4341 [email protected] Head of Materials (Hong Kong, China); Cement and Building Materials (China, Taiwan); Property (China)

Dennis IP (852) 2848 4068 [email protected] Power; Utilities; Renewables and Environment (Hong Kong/China)

John CHOI (852) 2773 8730 [email protected] Regional Head of Small/Mid Cap; Small/Mid Cap (Regional); Internet (China)

Jackson YU (852) 2848 4976 [email protected]

Small/Mid Cap (Regional)

Joey CHEN (852) 2848 4483 [email protected] Steel (China)

Kelvin LAU (852) 2848 4467 [email protected] Head of Transportation (Hong Kong, China); Transportation (Regional)

Jibo MA (852) 2848 4489 [email protected] Head of Custom Products Group; Custom Products Group

Thomas HO (852) 2773 8716 [email protected] Custom Products Group

PHILIPPINES

Norman H PENA (63) 2 813 7344 ext 301

[email protected]

Banking/Property

Michael David MONTEMAYOR

(63) 2 813 7344 ext 293

[email protected]

Consumer/Retail

Patricia PALANCA (63) 2 813 7344 ext 408

[email protected]

Utilities/Mining

SOUTH KOREA

Chang H LEE (82) 2 787 9177 [email protected] Head of Korea Research; Strategy; Banking

Sung Yop CHUNG (82) 2 787 9157 [email protected] Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel

Jun Yong BANG (82) 2 787 9168 [email protected] Tyres; Chemicals

Mike OH (82) 2 787 9179 [email protected] Capital Goods (Construction and Machinery)

Sang Hee PARK (82) 2 787 9165 [email protected] Consumer/Retail

Jae H LEE (82) 2 787 9173 [email protected] IT/Electronics (Tech Hardware and Memory Chips)

Joshua OH (82) 2 787 9176 [email protected] IT/Electronics (Handset Components)

Thomas Y KWON (82) 2 787 9181 [email protected] Pan-Asia Head of Internet & Telecommunications; Software (Korea) – Internet/On-line Game

TAIWAN

Mark CHANG (886) 2 8758 6245 [email protected] Head of Taiwan Research

Steven TSENG (886) 2 8758 6252 [email protected]

IT/Technology Hardware (PC Hardware)

Christine WANG (886) 2 8758 6249 [email protected] IT/Technology Hardware (Automation); Cement; Consumer

Kylie HUANG (886) 2 8758 6248 [email protected] IT/Technology Hardware (Handsets and Components)

INDIA

Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Head of India Research; Strategy; Banking/Finance

Saurabh MEHTA (91) 22 6622 1009 [email protected] Capital Goods; Utilities

SINGAPORE

Adrian LOH (65) 6499 6548 [email protected] Head of Singapore Research, Regional Head of Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore)

Angeline LOH (65) 6499 6570 [email protected] Banking/Finance, Consumer/Retail

David LUM (65) 6329 2102 [email protected] Property and REITs

Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of ASEAN & India Telecommunications; Telecommunications (ASEAN & India)


25 February 2014

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Daiwa’s Offices

Office / Branch / Affiliate Address Tel Fax

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HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661

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(49) 69 717 080 (49) 69 723 340

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Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, Russian Federation

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(82) 2 787 9100 (82) 2 787 9191

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Room 301/302，Kerry Center， 1 Guanghua Road，Chaoyang District， Beijing 100020, People’s Republic of China

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(86) 21 3858 2000 (86) 21 3858 2111

Daiwa Securities Capital Markets Co. Ltd, Bangkok Representative Office

18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand

(66) 2 252 5650 (66) 2 252 5665

Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India

(91) 22 6622 1000 (91) 22 6622 1019

Daiwa Securities Capital Markets Co. Ltd, Hanoi Representative Office

Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam

(84) 4 3946 0460 (84) 4 3946 0461

DAIWA INSTITUTE OF RESEARCH LTD

HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603

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London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550


25 February 2014

- 32 -

Disclaimer

This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Capital Markets Co. Ltd., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Japan Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc. Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Investment Banking Relationship

Within the preceding 12 months, The subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Jiangnan Group Limited (1366 HK); Blackgold International Holdings Ltd (BGG AU); Tosei Corporation (8923 JP); Modern Land (China) Co. Ltd (1107 HK); China Everbright Bank Company Limited (6818 HK); econtext Asia Ltd (1390 HK).

*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited, Daiwa Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd. Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. DHK market making DHK may from time to time make a market in securities covered by this research.

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The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research. Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. United Kingdom This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.


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This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory . Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Germany This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Bahrain

This research material is issued/compiled by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113

This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent. United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000). Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next six months. "2": the security is expected to outperform the local index by 5-15% over the next six months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next six months. "4": the security is expected to underperform the local index by 5-15% over the next six months. "5": the security could underperform the local index by more than 15% over the next six months. Additional information may be available upon request.

Explanatory Document of Unregistered Credit Ratings

(Moody’s Investors Service, Inc.)

In order to ensure the fairness and transparency in the markets, Credit Rating Agencies became subject to the Credit Rating Agencies’ registration system based on the Financial Instruments and Exchange Act.

In accordance with this Act, in soliciting customers, Financial Instruments Business Operators, etc. shall not use the credit ratings provided by unregistered Credit Rating Agencies without informing customers of the fact that those Credit Rating Agencies are not registered, and shall also inform customers of the significance and limitations of credit ratings, etc.

The Significance of Registration

Registered Credit Rating Agencies are subject to the following regulations:

1) Duty of good faith.

2) Establishment of control systems (fairness of the rating process, and prevention of conflict of interest, etc.).

3) Prohibition of the ratings in cases where Credit Rating Agencies have a close relationship with the issuers of the financial instruments to be rated, etc.

4) Duty to disclose information (preparation and publication of rating policies, etc. and public disclosure of explanatory documents).

In addition to the above, Registered Credit Rating Agencies are subject to the supervision of the Financial Services Agency (“FSA”), and as such may be ordered to produce reports, be subject to on-site inspection, and be ordered to improve business operations, whereas unregistered Credit Rating Agencies are free from such regulations and supervision.

The Name of the Credit Rating Agency Group, etc

The name of the Credit Rating Agency group: Moody’s Investors Service, Inc. ("MIS")

The name and registration number of the Registered Credit Rating Agency in the group:


25 February 2014

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Moody’s Japan K.K. (FSA commissioner (Rating) No.2)

How to acquire information related to an outline of the rating policies and methods adopted by the person who determines Credit Ratings

The information is posted under “Unregistered Rating explanation” in the section on “The use of Ratings of Unregistered Agencies” on the website of Moody’s Japan K.K. (The website can be viewed after clicking on “Credit Rating Business” on the Japanese version of Moody’s website (http://www.moodys.co.jp)

Assumptions, Significance and Limitations of Credit Ratings

Credit ratings are Moody’s Investors Service, Inc.’s ("MIS") current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. MIS defines credit risk as the risk that an entity may not meet its contractual, financial obligations as they come due and any estimated financial loss in the event of default. Credit ratings do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. Credit ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information is given or made by MIS in any form or manner whatsoever.

Based on the information received from issuers or from public sources, the credit risks of the issuers or obligations are assessed. MIS adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MIS considers to be reliable. However, MIS is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Explanatory Document of Unregistered Credit Ratings

(Standard & Poor’s Ratings Services)

In order to ensure the fairness and transparency in the markets, Credit Rating Agencies became subject to the Credit Rating Agencies’ registration system based on the Financial Instruments and Exchange Act.

In accordance with this Act, in soliciting customers, Financial Instruments Business Operators, etc. shall not use the credit ratings provided by unregistered Credit Rating Agencies without informing customers of the fact that those Credit Rating Agencies are not registered, and shall also inform customers of the significance and limitations of credit ratings, etc.

The Significance of Registration

Registered Credit Rating Agencies are subject to the following regulations:

1) Duty of good faith.

2) Establishment of control systems (fairness of the rating process, and prevention of conflict of interest, etc.).

3) Prohibition of the ratings in cases where Credit Rating Agencies have a close relationship with the issuers of the financial instruments to be rated, etc.

4) Duty to disclose information (preparation and publication of rating policies, etc. and public disclosure of explanatory documents).

In addition to the above, Registered Credit Rating Agencies are subject to the supervision of the Financial Services Agency (“FSA”), and as such may be ordered to produce reports, be subject to on-site inspection, and be ordered to improve business operations, whereas unregistered Credit Rating Agencies are free from such regulations and supervision.

The Name of the Credit Rating Agency group, etc

The name of the Credit Rating Agency group: Standard & Poor’s Ratings Services

The name and registration number of the Registered Credit Rating Agency in the group:

Standard & Poor’s Ratings Japan K.K. (FSA commissioner (Rating) No.5)

How to acquire information related to an outline of the rating policies and methods adopted by the person who determines Credit Ratings

The information is posted under “Unregistered Rating Information” (http://www.standardandpoors.co.jp/unregistered) in the “Library and Regulations” section on the website of Standard & Poor’s Ratings Japan K.K. (http://www.standardandpoors.co.jp)

Assumptions, Significance and Limitations of Credit Ratings

Credit ratings assigned by Standard & Poor's are statements of opinion on the future credit quality of specific issuers or issues as of the date they are expressed and do not guarantee timely payments of interest or principal. Credit ratings are not a recommendation to purchase, sell or hold any securities, or a statement of market liquidity or prices in the secondary market of any issues.

Credit ratings may change depending on various factors, including issuers' performance, changes in external environment, performance of underlying assets, creditworthiness of counterparties and others. Standard & Poor's conducts rating analysis based on information it believes to be reliable in terms of quality and quantity. However, Standard & Poor's does not perform an audit, due diligence or independent verification of any information it receives, or guarantees its accuracy, completeness or timeliness. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in

the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the

amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices,

real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.

*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association

Initiation: a solid real-estate gemasiaresearch.daiwacm.com/eg/cgi-bin/files/Frasers_Centre...Frasers Centrepoint Limited (FCL) is one of Singapore’s largest residential developers.

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