Earnings decreased as planned
FLI reported a 36% decline in revenue in the third quarter of 2020 (3Q20) mainly due to residential and retail sectors as the pandemic continues to drag on. Real estate revenues decreased by 44 per cent, while rental income dropped by 15 per cent due to rental exemptions and low foot traffic in the malls despite the continued activity of its office tenants. Net sales took a deep dive during the quarter, but it was in line with our expectations.
Real estate revenues were recovered and increased by 45 per cent quarter-on-quarter (QoQ) as construction activities improved due to a looser lockdown in the third quarter (3Q). According to management, almost 100 per cent of its projects are back in construction, while FLI needs to maintain a maximum of 50 per cent of its workers on site. The QoQ recovery in option sales, which increased 83 percent in 3Q as sales activities improved, was also worth noting.
We assume that the emphasis of FLI on the low-and middle-income segments and its relatively low concentration in Metro Manila is beneficial as buyers hold back on higher-priced residential properties.
We keep our investment rating at the target price of P1.24 as we roll over our prediction to 2021. FLI is currently trading at a 40% discount on its 5-year average Price-to-Book, which support our valuation.