Perennial Real Estate Holdings - DBS Research 2016-02-10: An eye on the future

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PERENNIAL REAL ESTATE HOLDINGS 40S.SI 

Perennial Real Estate Holdings - An eye on the future 

What’s New 

• Steady returns in quarter ending Dec-15 
• Expected launch of TripleOne Somerset strata office sales to catalyse stock 
• Execution of China projects on track 

Trading at 59% discount to RNAV. Maintain BUY. 

• We have a BUY recommendation, with TP of S$1.32 pegged to a 40% discount to our RNAV estimate of S$2.20. 
• The stock is currently trading at a 59% discount to RNAV, which in our view would have priced in most uncertainties regarding the group’s ambitious plans to grow in China. 

Development projects offer huge value-unlocking potential. 

• PREH’s value lies in its global land bank located in China, Malaysia, and Ghana, where it has an attributable development pipeline of c.5m sqft of commercial, retail, hotel, and residential GFA. 
• All these is projected to be progressively completed from 2016 onwards. 
• Earnings are underpinned by a stable portfolio of operational investment properties in Singapore and China, and recurring property management fees. 

S$4.3bn of value embedded in land bank. 

• We estimate that the current attributable value of PREH’s development properties on the books stands at S$1.7bn, excluding Ghana. 
• In terms of geographical breakdown, China accounts for c.78% of this value, while Singapore accounts for the remaining 22%. 
• When fully completed, we estimate gross development values of S$3.7bn in China, and S$0.6bn in Malaysia. 

Valuation: 

• We estimate PREH's RNAV at S$2.20 per share, which includes its Penang development. 
• Our TP of S$1.32 is based on a 40% discount to factor in the Group's exposure in China, given its limited operating track record there. 
• Note that we have not imputed the Ghana development into our numbers given uncertainty in terms of cost estimates. 

Key Risks to Our View: 

Upside to estimates upon more details from Ghana project 

• In April, PREH announced a 55/45 JV with Shangri-La to develop a 1.7m-sqft GFA integrated project in the airport district of Accra, capital of Ghana. 
• Total completion of this acquisition, which is pending master planning approval, could add an additional S$0.06-0.08 to our RNAV per share estimates.

Derek Tan DBS Vickers | Mervin SONG DBS Vickers | http://www.dbsvickers.com/ 2016-02-10

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.32 Same 1.32