DBS initiated coverage of First Sponsor Group at Buy with a S$1.62 target price, saying it would be a beneficiary of Brexit.
“First Sponsor is one of the rare property developers listed in Singapore that will benefit from higher demand fuelled by post-Brexit relocation to Netherlands,” it said in a note on Monday.
“Amsterdam – having won the relocation of European Medicines Agency (EMA) in London, coupled with Netflix, Facebook, Uber and Google expanding their base in Amsterdam – suggests growing confidence that Amsterdam will be one of the beneficiaries of Brexit,” the bank said.
DBS noted that First Sponsor owns 13 properties/projects in the Netherlands, mainly in Amsterdam, and one hotel property in Frankfurt, Germany. Office rents in Amsterdam rose 6-23 percent in 2017, while vacancy rates fell to 11.7 percent, their lowest since 2007, before the Global Financial Crisis, DBS said, citing data from Cushman and Wakefield.
That could give First Sponsor a first-mover advantage among Singapore peers, DBS said, noting it was one of the few to invest in continental Europe’s property market before the Brexit referendum.
DBS also called First Sponsor’s growing third-party financing business a “wild card” for earnings.
“With liquidity tightening in China, the group’s third-party property financing division stands to benefit from increased demand for property financing,” DBS said.
It noted management has indicated, based on recent demand, that it could double its loan portfolio amid average interest rates of around 12 percent.
“If the deployment of cash is successful, interest income from the loan portfolio could contribute some 14 percent of the group’s 2018 net profit,” DBS said.
The stock ended up 1.60 percent at S$1.27 on Tuesday.