Here's a Singapore-listed stock exposed to China's property market

First Sponsor Group (SGX: ADN) is a property developer and investor in China, Europe and Australia

Property development projects are mainly located in China, while property holding portfolio comprises mainly hotels and office in the Netherlands. 

It also provides property loans to third parties in China, and to associated companies in Europe and Australia. 

As at end 2023, property development made up 55% of net assets, investment 30% and financing 15%. 

The major shareholders are Tai Tak Asia Properties (44.8%) and City Developments (35.1%). 

Growth in net profit

1H24 net profit turned in positive growth of +12.4% yoy, led by higher development revenue (+182.9% yoy to S$52.9m), as project handover picked up pace from this year. 

In the property holding segment, the hotels (total 3,600 keys) enjoyed rising occupancy and room rates, with more re-openings after extensive renovations. Income from property financing was flat.

FSG has ten ongoing development projects in China with total saleable area 2.2 million sqm, of which 88% are in the Greater Bay Area and 12% in Chengdu. 

Two-thirds are joint developments with Chinese developers such as Poly Property and China Vanke. It has launched 37% of the projects with a sell-through rate of 66%. 

About 90% of projects are commencing handover to buyers from this year, and it would begin to book revenue and profit, and receive the remaining sales proceeds. 

FSG also extends secured short-term property loans to third parties in China at interest rates of between 8.0% to 13.8%. 

Over the last few years, it has scaled back the loan book in view of the weak property market. Loan book at end-Jun 24 in China was RMB1.04bn (4.5% of total assets).

Property stimulus measures may boost sentiment  

China property stocks received a shot in the arm with the Politburo’s call on 26 Sep to stop the decline in the property market. 

Rising expectations for fiscal stimulus to lift employment and consumer confidence could also revive demand and stem the price decline. 

The country introduced a slew of property-related measures to speed up property inventory purchases, including lower existing mortgage rates and minimum down-payment for second home purchase. 

The policy announcements could continue to boost market sentiment and stabilize the Chinese property industry in the near term.

Acquisition of listed NSI

FSG recently increased its stake in Euronext Amsterdam-listed NSI N.V. by 10.65% to 13.5% for S$62.5m. 

NSI has a property portfolio of 45 office properties across the Netherlands with market value of €1.0 billion. FSG has a board seat.

Net debt is expected to fall to S$930m, and net gearing improved to 0.4x, after the Sep 2024 issuance of S$283.8 million worth of Series-3 4.85% Perpetual Convertible Capital Securities (PCCS) to existing shareholders. 

They are convertible into ordinary shares at S$1.08. The issuance would result in interest savings, and add S$5m to net profit, we estimate. 

After full conversion of PCCS and 188.3 million outstanding warrants due Mar 2029 (exercise price S$1.08), the fully diluted NAV is S$1.58. 

First Sponsor is trading at 39% discount to book value of S$1.76. 

Current share price is 39% discount to book value of S$1.76, and 32% discount to fully-diluted book value of S$1.58. 

As this is a non-rated report, we do not have forecasts for earnings and revalued net asset value for the group. 

However, we note that the development projects and hotels are stated at lower of cost or net realizable value. 

FSG paid a dividend of 4.2 cents/share in FY23, translating to yield of 3.93%.

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