CIMB Securities 2015-08-04: Perennial Real Estate Holdings - 4Q15 Results. Gathering momentum. Maintain ADD.


Gathering momentum 

  • PREH’s 4QFY15 net profit was largely from recurring income from its properties in Singapore and China, and management fees. 
  • We anticipate profit momentum to pick up pace from FY16 thanks to the opening of Capitol Piazza, as well as from the recently-approved proposed AEIs at TripleOne Somerset and AXA Tower. 
  • The latter has not been factored into our present forecast. 
  • Whilst we stretch out our earnings recognition assumption and lower our FY16 and FY17 estimates by 6-14%, we maintain our Add rating with an unchanged RNAV-based target price of S$1.39

Boost from recurrent income 

  • PREH completed the reverse takeover of St James Holdings in Oct 2014. As such, its FY15 results are not comparable with the FY14 numbers. 
  • In 4QFY15, its reported revenue of S$39.3m and earnings of S$8.8m were derived from rental income from operational assets in Singapore and China, such as CHIJMES, TripleOne Somerset, AXA Tower, Perennial Jihua Mall and Perennial Qingyang Mall in China. 
  • Singapore-sourced income made up c.41% of revenue, with China properties accounting for 16% and the remaining from management fee income. 
  • For FY15, the bottom line was also lifted by revaluation gains of S$53.2m, partly offset by an $11.4m one-off RTO and VO transaction cost. 

Ramping up activities 

  • Looking ahead, we anticipate PREH’s operations and income stream to accelerate. 
  • In addition to rental income from the newly-opened Capitol Piazza (80% leased), TripleOne Somerset has received planning approval for its planned AEIs, including increasing its retail footprint and utilising up to 32,000sf of GFA for medical suites. 
  • There are also plans to strata sell one of its office blocks. For AXA Tower, planning permit has been received to increase the property’s NLA by 85,000sf as well as to house a new 2-storey annexe block for up to 32,000sf of medical suites space. 
  • Contributions from these uplifts have not been factored into our present forecast. 
  • In addition, in China, repositioning of the Perennial Dongzhan Mall into a medical and healthcare hub is underway. To date, both wings of the development have been topped out and expressions of interest received for > 90% of leaseable area set aside for healthcare services, ahead of its completion in 2016. 
  • Meanwhile, the pre-sale permits for part of the residential component at Plot D Chengdu HSR development has been obtained. 
  • Profits from these developments should boost earnings when launched. 

Maintain Add 

  • We have cut our FY16 and FY17 estimates by 6-14% as we stretch out the income recognition stream from new developments. 
  • We maintain our Add call with an unchanged RNAV-backed target price of S$1.39.

LOCK Mun Yee | TAN Xuan CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-04
ADD Maintain ADD 1.39 Same 1.39