SINGAPORE (Feb 14): DBS Group Research is keeping the faith in Perennial Real Estate Holdings (PREH), despite the real estate and healthcare company posting a 22.2% drop in full-year earnings.

Perennial on Wednesday reported a 42% plunge in 4Q18 earnings to $16.0 million, bringing FY18 revenue to $78.1 million – more than one-fifth lower than $100.3 million a year ago.

See: Perennial posts 42% fall in 4Q earnings to $16 mil; dividend drops 60% to 0.4 cent per share

According to DBS, the decline was mainly due to the absence of a one-off divestment gain last year, as well as higher net interest expenses.

Shares in Perennial closed at 64.5 cents on Wednesday, some 27% lower than its 52-week-high of 88.5 cents in April last year.

But DBS believes Perennial can unlock development value from its strategically located land bank with partial exposure to healthcare.

Main image (above): Artist’s impression of Xi’an North High Speed Railway Integrated Development. Photo: Perennial Real Estate Holdings

“PREH’s hidden gems are 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 Thursday report.

“Apart from property, PREH has built a portfolio of medical and healthcare services to leverage on rising healthcare demand in China and Singapore,” she adds.

As such, DBS is keeping its “buy” call on Perennial with a target price of 83 cents.

“The stock currently trades at 0.4x P/BV, offering massive upside as it gradually realises its RNAV potential,” Tan says.

According to Tan, the target price is based on a 55% discount to revalued net asset value of $1.85, after factoring in potential execution risks and long development and gestation periods.

“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,” Tan says.

“We believe the strength of its stakeholders plays an integral role to execute and mitigate potential financial risks,” she adds. Perennial is 79% owned by its four key sponsors, including Wilmar International’s Kuok Khoon Hong, Osim International’s Ron Sim, and Perennial CEO Pua Seck Guan.

As at 2.52pm, shares in Perennial are trading flat at 64.5 cents.