SINGAPORE (Aug 6): DBS Group Research is keeping its “buy” call on Perennial Real Estate Holdings (PREH) with an unchanged target price of $1.05 on the back of its medium- to long-term development plans.
“PREH’s hidden gems lie in its vast integrated projects in strategic locations across the main transportation hubs in China though these have lengthy gestation periods,” says lead analyst Rachel Tan in a report on Monday. “Apart from property, PREH has built a portfolio of medical and healthcare services to leverage on rising healthcare demand in China and Singapore.”
Perennial in the 2Q18 ended June received maiden revenue contributions from Perennial International Health and Medical Hub (PIHMH) following its opening during the quarter.
A first-of-its-kind one-stop medical, healthcare and retail integrated development, PIHMH has a total gross floor area (GFA) of over 280,000 sqm and sits next to the Chengdu East high speed railway in China’s Sichuan Province.
See: Perennial International Health and Medical Hub officially opens in Chengdu
However, the new revenue stream was unable to lift PREH’s earnings.
The group’s 2Q18 earnings was halved to $8.6 million, bringing earnings for 1H18 down 75% year-on-year to $14 million.
This was mainly due to the absence of a one-off divestment gain from the sale of TripleOne Somerset a year ago, as well as lower fair value gains on revaluation of investment properties mostly in China, and higher net interest expenses following higher borrowings from the consolidation of Capitol Singapore.
See: Perennial Real Estate's 2Q earnings drop by half to $8.6 mil despite revenue growth
“We remain positive on its medium- to long-term development plans especially as its investments in China (and its healthcare hub) slowly come to fruition despite potential near-term financial risks,” says Tan.
However, she believes the strength of PREH’s stakeholders, which include key sponsors Kuok Khoon Hong of Wilmar International and Ron Sim of OSIM, will play an integral role in the execution and mitigation of potential financial risks.
Similar to PIHMH, PREH has also announced its third high-speed rail (HSR) integrated project in Tianjin South.
PREH’s 45%-owned joint venture vehicle, Perennial HC Holdings, will invest an estimated RMB2.7 billion ($564.3 million) to develop the integrated development in Xiqing District, Tianjin. Expected to commence operations from 2022, it will serve as a one-stop regional healthcare and commercial hub for the upcoming megalopolis integrating Beijing, Tianjin and Hebei (Jing-Jin-Ji) in Northeast China.
See: Perennial-led JV vehicle to invest $564 mil in Tianjin South HSR integrated development
PREH’s Renshoutang in July also opened the 1,350-bed Wuhan Jiuzhoutong Renshoutang Xiehe Eldercare and Retirement Home, bringing its total number of operational beds stood at 5,006. “It currently has a committed pipeline of 9,000 beds and potential pipeline of more than 13,500 beds,” says Tan.
“The stock currently trades at 0.5 time price-to-book value (P/BV), offering massive upside as it gradually realises its revalued net asset value (RNAV) potential,” she adds.
As at 12.25pm, shares in Perennial are trading half a cent lower at 80 cents, implying an estimated price-to-earnings (PE) ratio of 101.7 times and a dividend yield of 1.2% for FY18.
