Perennial Real Estate Holdings - CGS-CIMB 2018-05-09: A Busy Quarter

PERENNIAL REAL ESTATE HLDGSLTD SGX: 40S

Perennial Real Estate Holdings - A Busy Quarter

Perennial Real Estate Holdings' 1Q18 net profit of S$5.1m was below expectations, at 10.5% of our FY18F forecast.
Singapore property activities are accelerating with more projects and better leasing commitments.
Perennial International Health and Medical Hub (PIHMH) to open by mid-2018; wins contract to manage government-built eldercare facility.
Maintain ADD with unchanged Target Price of S$1.18.

Perennial Real Estate Holdings (PREH) reported a 26.1% y-o-y decline in 1Q18 revenue to S$14.9m due to deconsolidation of TripleOne Somerset following the partial 20.2% stake sale in 2017. This was partly offset by higher China revenue, largely due to higher contributions from Perennial Qingyang Mall in Chengdu.
On a comparable basis, 1Q18 revenue would have been 10% higher y-o-y.

However, bottomline declined 86.7% y-o-y to S$5.1m profit in 1Q18 due in part to a higher base in 1Q17 with divestment gains from the sale of its 20.2% stake in TripleOne Somerset and re-measurement gain for the remaining 30% stake in the property.
The y-o-y decline in 1Q18 was partly offset by higher associate contributions, mainly from the difference between the acquisition price and fair value of the acquired assets of the additional 19.9% stake in WBL, purchased in Feb 18.

TripleOne Somerset’s AEI works are on track to be completed in 2H18. It has leased 46,570 sq ft of space to NTUC Finest and Spaces co-working space provider. Committed occupancy at AXA Tower rose q-o-q to 90.8% at end-1Q18. PREH is exploring enbloc opportunities for this building to capitalise on the rising office market.
It bought the remaining 50% stake in Capitol Singapore and is finalising the appointment of a hotel operator. It also owns 40% of the Goodluck Garden enbloc residential project, together with Qingjian Group.

Perennial International Health and Medical Hub (PIHMH) has achieved committed occupancy of 87.6% and is slated to officially open on 1 Jun.
Within the eldercare and senior living business, Shanghai RST was awarded a contract to operate the 768-bed Fengxian Second Welfare Home for 5 years. This is the first government-built, privately-operated facility in Fengxian District, Shanghai. This home is expected to open in 3Q18. Once fully ramped up, we anticipate contributions from this business to improve in the medium term.

We leave our FY18-20F earnings estimates unchanged and maintain our ADD rating. Our Target Price of S$1.18 is based on a 40% discount to RNAV.
Potential catalyst is faster-than-expected ramp-up of Capitol Singapore and Perennial International Health and Medical Hub while downside risk could be slower-than-projected operational improvement.

LOCK Mun Yee CGS-CIMB | https://research.itradecimb.com/ 2018-05-09

SGX Stock Analyst Report ADD Maintain ADD 1.180 Same 1.180