DBS Vickers 2015-08-05: Perennial Real Estate Holdings - 4Q15 Results. Jigsaw falling into place. Maintain BUY.

Jigsaw falling into place 

  • 4QFY15 operating PATMI of S$8.8m in line.  
  • Earnings boosted by one-off acquisition fee for AXA.  
  • AEI works for TripleOne and AXA announced. 
  • Maintain BUY, TP S$1.32. 


Earnings underpinned by investment properties. 

  • PREH announced 4QFY15 PATMI of S$8.8m, with earnings derived from investment properties in Singapore (CHIJMES, TripleOne Orchard) and China (Jihua Mall, Qingyang Mall). 
  • Earnings were further boosted by a c.S$12m acquisition fee relating to AXA Tower, of which PREH is the asset manager. 


Redevelopment plans TripleOne and AXA Tower unveiled. 

  • The Group has revealed its asset enhancement works at TripleOne Orchard and AXA Tower, which involves substantially redeveloping the retail areas and introducing medical suites in both assets, which have received approval to utilise up to 32k sqft for medical suite purposes. 
  • For TripleOne Orchard, the Group intends to convert the first two office floors into retail area, doubling total retail footprint to four floors, which will be positioned to include education trades and medical suites in addition to retail offerings. 
  • For AXA Tower, PREH will increase the NLA of the asset by an additional 85k sqft, of which 32k sqft will be set aside for a two-storey annexe block featuring medical suites. 
  • The remaining additional NLA will be used to expand retail offerings of the asset. 
  • Redevelopment works at both assets are expected to commence by end-2015 pending approval permits, and will likely take 1.5 to 2 years to complete. 
  • To fund development works, PREH will strata sell office units at TripleOne (one tower) and AXA Tower. This will help the Group to maintain a nimble balance sheet (gearing is fairly low at 0.4x currently). 

Pieces are falling into place. 

  • With the repositioned International Health and Medical Hub (formerly Dongzhan Mall) set to open in 1H16, and residential towers in Chengdu Plot D to begin sales by end 2015, PREH is making significant strides to unlock value of its property developments in both Singapore and China. 
  • Although these development projects have yet to contribute in a meaningful way, the Group is on track to meet its indicative timelines, and we expect significant earnings contributions from CY2016 onwards coming from rental income at Dongzhan Mall, as well as development profits from sales of residential units in Chengdu. 
  • This gives us confidence that the Group can continue to deliver on its plans, and if successfully executed, could see the discount to its estimated value potential narrowing. 


  • We estimate PREH’s RNAV at S$2.20 per share. 
  • Our TP of S$1.32 is based on a 40% discount to factor in the Group’s exposure in China, as well as its limited operating track record in China. 
  • We have not imputed the Penang development into our numbers. 
  • We have a BUY call on PREH. 

Key Risks: 

Significant exposure to China. 

  • With 70% of the Group’s property value and 95% of attributable GFA located in China, any macroeconomic or regulatory changes in China could adversely impact the Group’s income and earnings outlook. 

Execution risk. 

  • A significant growth in earnings and uplift in NAVs will be derived from ongoing large scale developments in China and Singapore. 
  • As a newly listed entity, management has to demonstrate that it can execute effectively to drive growth. 

Analyst: Rachael TAN; Derek TAN

Source: http://www.dbsvickers.com/