• FY20 net profit 28% below forecast due to lower share of after-tax profits from associates and JVs as well as lack of other gains.
• ASPs for Dongguan projects exceeded estimates by 10-30%. Unrecognised property development sales rose from S$599mn to S$935mn. Total gross development value (GDV) for unlocking surged from S$1.9bn to S$4.1bn, with the addition of new Fenggang and Panyu projects.
• Record FY21 pretax profit expected from revenue backlog.
• Maintain BUY with unchanged SOTP target price of S$1.56.

The Positives

+ Record FY21 pretax profit expected. FSG only recognised profits from four commercial units and 3,997 carpark lots in FY20, which resulted in a 64% dip in revenue from property sales (FY19: 867 residential units, 122 commercial units and 199 carpark lots). We believe the bulk of GDV from the Star of East River and Emerald of the Orient should be recognised in FY21. We estimate a total of S$363mn from these projects. In addition, unrecognised revenue from the Pinnacle and Plot F of Millennium Waterfront was S$372mn. This should be recognised progressively over the next two years.

The Negatives

– FY20 net profit 28% below expectations. Gross profit was in line at 95% of forecast despite a 36% YoY dip in revenue. This was thanks to better margins from the sale of carpark lots at Millennium Waterfront, which were carried at zero cost. However, net profit was down 39% YoY and 28% below expectations, due to a S$12.3mn loss from associates and JVs vs. a S$71.2mn gain in FY19. There was also a lack of other gains from the disposal of Oliphant a year ago. Adjusted for Oliphant office sale, FX gains and non-cash adjustments, net profit declined 14.8% YoY.

– RMB330mn loan in default. A borrower group with two cross-collateralised loans amounting to RMB330mn has been in arrears in a month’s worth of interest payments since March 2020. In November 2020, FSG commenced legal action to recover its outstanding loan principal and interest. The loans have been secured on a residential villa and a 5-floor retail mall in Shanghai with a combined LTV of 53.4%. In view of FSG’s ongoing discussions with the borrower and positive outcomes in two defaulted loans previously, FSG is optimistic about recovery. No provision was made for its outstanding loan principal in 4Q20.