SINGAPORE (Feb 9): DBS is maintaining its “buy” call on Perennial Real Estate Holdings (PREH) with a lower target price of $1.05.
The stock is trading at 0.5x P/B which DBS says has priced in most of the uncertainties on its ambitious expansion plans, execution risks on its development projects, and realisation of its development value.
“Currently, PREH trades at 0.5x P/NAV, offering massive upside as it gradually realises its RNAV potential,” says analyst Rachel Tan in a Thursday report.
Tan says PREH’s hidden gems lie in its vast integrated projects in strategic locations across the main transportation hubs in China.
Apart from property, PREH has built a portfolio of medical and healthcare services to leverage on rising healthcare demand in China and Singapore, adds the analyst.
More importantly, most of PREH’s investment properties are showing improved operational statistics; Chengdu Healthcare Hub will become operational by 3Q17; Beijing Tongzhou Integrated Development is expected to launch pre-sales of residential/office properties in FY17 while management is exploring opportunities to set up a healthcare fund.
The coming onstream of Chengdu Healthcare Hub by 3Q17 will also mark the start of realising returns from a string of investments in China.
To recap, PREH posted a 40% fall in FY16 earnings to $35 million mainly due to lower net fair value gains of $35 million and lower revenue. Excluding net fair value gains, FY16 earnings fell to $0.3 million.
“Our target price of $1.05 is based on a 50% discount to RNAV to factor in potential execution risks and long development/gestation period,” says Tan, “Our estimates include a marginal contribution from its new healthcare venture.”
Shares of PREH are trading 1 cent lower at 79.5 cents.
