Perennial Real Estate Holdings - CIMB Research 2015-12-09: Building earnings momentum

Perennial Real Estate Holdings - CIMB Research 2015-12-09: Building earnings momentum PERENNIAL REAL ESTATE HLDGSLTD 40S.SI 

Perennial Real Estate Holdings - Building earnings momentum 

  • Recurrent leasing income with a boost from development profit. 
  • Singapore assets are operational and now generate c.65% of topline. 
  • China malls’ performance gaining momentum. 
  • Launch and sale of Singapore strata office space to provide another source of income. 
  • Maintain Add with an unchanged target price of S$1.39. 

■ Stable income base plus potential development value creation 

  • PREH derives the bulk of its recurrent income from leasing its completed Singapore and China properties, giving the group a steady recurrent income base. These assets make up 62% of its portfolio value and 31% of its GFA. 
  • The planned launch and sale of its development projects, largely in China, should provide another source of income and value creation in the medium term, thus narrowing the gap between the share price and its RNAV. 

■ Singapore assets are operational and well occupied 

  • PREH’s properties in Singapore enjoy a high occupancy rate. CHIJMES is 88% preleased of which 77% of its tenants are operational. 
  • In addition, Capitol Piazza is over 80% pre-committed and most of the tenants, including a number of new concepts and new-to-Singapore fashion and F&B names have commenced operations. 
  • Rental income is expected to expand when more of its tenants become operational. 

■ China malls are stabilising 

  • In China, the Perennial Jihua mall’s occupancy rate has hit 99.7% while the Perennial Qingyang mall’s is 98.6%. 
  • We expect the latter’s performance to improve as the upcoming completion of three office blocks nearby enlarges its potential catchment pool. 
  • In addition, securing a key hospital anchor tenant for c.53% of the 90,000 sq m earmarked for healthcare use at the Perennial International Health and Medical Hub will complement retail activities at the Chengdu HSR integrated project in the long run. 

■ Sale of office space could provide another earnings driver 

  • The launch of the strata office space at TripleOne Somerset and AXA Tower would enable the group to monetise some of its properties. Both properties have received planning permits and are awaiting other development approvals for its AEIs, which include building a medical suites block, increasing the retail area and offering strata office space for sale. These works could start in 1Q16. 
  • Show suites for the strata offices are being set up. When launched, this would form another income source for the group. 

■ Reiterate Add 

  • We reiterate our Add call with a target price of S$1.39, pegged at a 35% discount to RNAV. 
  • A potential catalyst for the stock is the monetisation of its strata office space in Singapore.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-11-06
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.39 Same 1.39