Perennial Real Estate Holdings - DBS Research 2016-03-29: Expanding Its Healthcare Footprints

PERENNIAL REAL ESTATE HOLDINGS 40S.SI

Perennial Real Estate Holdings - Expanding Its Healthcare Footprints

Perennial to acquire a 20% stake in Aidigong; a postand neo-natal care centre (i.e. confinement centre) for Rmb135m (S$28.7m) at 9.7x FY16E EBITDA
In line with management’s long-term strategy in healthcare sector via partnerships / joint venture

Perennial signed an investment agreement to acquire a 20% stake in Shenzhen Aidigong Modern Maternal and Child Health Management (“Aidigong”), a maternal and child health management company that specialises in post- and neo-natal care (i.e. confinement centre) in Shenzhen and Beijing.
Aidigong is one of the leading post- and neo-natal care centres in Shenzhen and Beijing. It currently owns five centres (three in Shenzhen, and one each in Beijing and Chengdu), including its new 89k-sqft centre at Perennial’s Chengdu Medical Hub, expected to open by end- 2016/2017.

Acquisition price: Rmb135.4m (S$28.7m), implying a 9.7x on FY16E EBITDA
Post acquisition, Perennial will be the 2nd largest single shareholder after founder and Chairman, Ms Zhu Yufei (44.3% equity interest). The remaining 35.7% will be held by mostly individual shareholders.
Acquisition will be 70% funded by borrowings.
Financial impact: On full-year basis, we estimate that Aidigong’s existing business may contribute less than 5% to Perennial’s EBIT.

According to management, while the concept of confinement centres is still new in China, it is gaining popularity within the affluent society; a market segment in which Aidigong targets. Based on our brief research, Aidigong had previously hosted celebrities and appears reputable in the high-end market.
The acquisition is in line with Perennial’s long-term strategy to expand its healthcare segment and to grow a portfolio of holistic medical and healthcare services.
Moving forward, management will continue to explore strategic partnerships/joint ventures with leading medical and healthcare-related operators and is optimistic on its pipeline of business opportunities in this segment.
We maintain our BUY recommendation on huge value unlocking potential from its development projects.
Perennial trades at a 58% discount to our RNAV, which we believe has priced in the uncertainties regarding the group’s ambitious plans to grow in China.
(TP: S$1.32)

Derek Tan DBS Vickers | Rachel Tan DBS Vickers | http://www.dbsvickers.com/ 2016-03-29

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