Perennial Real Estate Holdings - CIMB Research 2016-05-16: Taking small steps forward

PERENNIAL REAL ESTATE HLDGSLTD 40S.SI

Perennial Real Estate Holdings - Taking small steps forward

1Q16 net profit was slightly below expectations, at 18% of our FY16 forecast
Higher revaluation gains and better results from operating assets lifted 1Q16 earnings performance yoy.
Sale of strata office and medical suites in Singapore to commence in late 2Q16.
International Health and Medical Hub in Chengdu, 54% pre-leased currently, due to commence operations in 1Q17.

PREH reported 1Q16 net profit of S$8.5m (US$6.2m, +148% yoy), with 9% higher revenue of S$29.5m (US$21.5m).
The improvement came from a S$7.5m revaluation gain from the Chengdu High Speed Railway (HSR) development, which has been reclassified as investment property, as well as higher operating income from Singapore and China assets, as well as greater associate contributions.

Singapore revenue dipped by a slight 5% yoy to S$14.8m in 1Q16 as TripleOne Somerset is prepared for asset enhancement works and strata sales. However, 1Q16 EBIT rose 2% yoy with higher share of results from AXA Tower. Both properties have received the relevant approvals to enhance the retail component and sales of strata and medical suites.
Strata sale at TripleOne is due to commence in May/Jun 16 and AXA Tower in Jun 16. We have not imputed any sales contribution into our existing estimates.

PREH recorded a 19% improvement in China turnover to S$7.6m in 1Q16, while EBIT surged to S$14.2m.
Stripping out revaluation gain of S$7.5m, 1Q16 operating profit rises to c.S$6.7m on better performance from operational assets.
The health and medical hub in Chengdu is 54% pre-leased and more complementary medical and healthcare-related tenants are being targeted. Construction works are due to be completed by end 16 and part of block A1 to commence operations in 1Q17.

PREH completed the purchase of a 20% stake in Shenzhen Aidigong in Apr 16 for Rmb135m. Aidigong operates two maternal/newborn health centres in Shenzhen and a post-natal treatment centre in Beijing.
Contributions from this will be felt in 2Q16 onwards. Part of Plot D2 at the Chengdu HSR mixed-use development has been converted to an eldercare and retirement home, with operations expected to commence in 2017. We have not factored any impact from these developments into our estimates.

We lower our FY16-18 EPS estimates by 3-17% following the latest results.
Our estimates do not include any potential contribution from strata sales at TripleOne Somerset and AXA Tower, as well as healthcare activities.
In terms of valuations, we lower our target price to S$1.14, as we widen our discount to RNAV from 35% to 40%, bringing it in line with other mid-cap property stocks.
Maintain Add rating.
Share price catalysts could emerge when planned sales in Singapore are executed

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-05-16

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.14 Down 1.24