
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
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Mervin SONG
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http://www.dbsvickers.com/
2016-02-10
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1.32
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1.32