Below. 1Q09 core net profit of S$71.4m forms 17% of our full-year forecast as lower property bookings and weaker dairy income due to the melamine scare proved to be drags. We believe results were below consensus as well.

Property slowed while melamine scare dampened festive cheer. 1Q09 revenue fell 6% yoy to S$1.2bn as property contributions retreated while there was lower demand for dairy products due to the melamine scare. Soft drinks and brewery, as expected, did well due to year-end festivities but the outlook remains uncertain. Development revenue fell 29% yoy to S$220m as lower presales were booked in the quarter. The deferment of launches in the struggling UK and Australia markets could be additional causes. Printing and Glass continued to underperform.

Taking the lead in forsaking margins for volume. Over 300 units of Caspian have been sold at ASPs of S$600psf vs. S$750psf for Lakeshore. While F&N has taken the first step to clear inventory at reduced prices, we struggle to find profits at this level. There was little sales progress at partially sold Woodsville 28 and Martin Place. We believe further price cuts could surface in the near term.

Pressure mounting on balance sheet. Net gearing at 1Q09 was 0.66x, within the upper bound of its big-cap property peers. Potential write-downs of F&N’s UK and Australia properties could lift this ratio. While we take comfort in guidance that refinancing for over S$1bn of the S$1.7bn worth of maturing debt has been secured, risks of off-balance sheet commitments to re-capitalise FCOT remain, with the latter needing to retire over S$620m of maturing debt in 2009. A short-term loan of S$70m has already been given to the REIT. It remains to be seen if FCOT can successfully monetise its Japanese and Australian assets to pare down debt.

Further risk of RNAV erosion; maintain Underperform. We lower our FY09-11 core EPS estimates by 0-19% to factor in slower inventory turnover and F&B income. We also reduce our end-CY09 RNAV by 13% to S$3.80 to account for: 1) potential capital drains to recapitalise FCOT; 2) lower valuations for its stakes in listed entities; and 3) lower ASPs. We continue to peg our target price at a 30% discount to RNAV to reflect its holding company structure and rising risks of asset write-downs. Accordingly, our target price drops to S$2.66 from S$3.09.