18-03-2014, 11:54 AM
CIMB: Perennial China Retail Trust | PDF
St James tweaks offer, our thesis remains
PCRT SP / PCRT.SI | REDUCE - Maintained | S$0.55 - TP: S$0.50
Mkt.Cap: US$498.00m | Avg.Daily Vol: US$0.77m | Free Float: 44.00%
REIT | Author(s): Xuan TAN +65 6210 8698, Donald CHUA
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▊ St James announced that it will not be issuing the 52m shares as previously disclosed in its plan for a reverse takeover of Perennial. There are also adjustments to the issue price, EPS and NTA/share, resulting in a valuation of 0.8x P/BV and 20.9x P/E for PREHL. Even so, this latest development does not change our view that the deal is not attractive enough for the shareholders of PCRT, as elaborated in our report on 16 Mar 2014. We maintain our Reduce rating and RNAV-based target price.
What Happened
St James announced that it will not be issuing the 52m shares as previously disclosed in its plan for a reverse takeover of Perennial. There are also adjustments to the issue price, NTA/share and EPS. The adjusted issuance price is now S$1.3353/share. The adjusted NTA/share and EPS result in a valuation of 0.8x P/BV and 20.9x P/E PREHL. Gearing of PREHL is reduced from 0.51 to 0.46.
What We Think
Valuation still on the high side. The 0.8x P/BV for PREHL, although better than before, remains on the high side as compared to other Singapore developers. We continue to believe that the high percentage of assets under development warrants a steeper discount. Thesis remains unchanged. Existing shareholders converting into PREHL would compromise on yield, accept higher development risks, higher gearing and wait a much longer time for the portfolio to complete development. While investors can buy PCRT at 0.7x P/BV to be exchanged for PREHL shares at 0.8x P/NTA, we believe PREHL’s shares may de-rate to an average 0.74x P/BV as well. CMA is trading at 0.87x P/BV, but 75% of its assets are operational, while 77% of PREHL’s assets are still under development.
What You Should Do
We make no changes to the thesis which we elaborated in our report on 16 Mar 2014 and keep our recommendation at Reduce. We would continue advocating for a reduced exposure on potential overhang post the announcement.
St James tweaks offer, our thesis remains
PCRT SP / PCRT.SI | REDUCE - Maintained | S$0.55 - TP: S$0.50
Mkt.Cap: US$498.00m | Avg.Daily Vol: US$0.77m | Free Float: 44.00%
REIT | Author(s): Xuan TAN +65 6210 8698, Donald CHUA
________________________________________
▊ St James announced that it will not be issuing the 52m shares as previously disclosed in its plan for a reverse takeover of Perennial. There are also adjustments to the issue price, EPS and NTA/share, resulting in a valuation of 0.8x P/BV and 20.9x P/E for PREHL. Even so, this latest development does not change our view that the deal is not attractive enough for the shareholders of PCRT, as elaborated in our report on 16 Mar 2014. We maintain our Reduce rating and RNAV-based target price.
What Happened
St James announced that it will not be issuing the 52m shares as previously disclosed in its plan for a reverse takeover of Perennial. There are also adjustments to the issue price, NTA/share and EPS. The adjusted issuance price is now S$1.3353/share. The adjusted NTA/share and EPS result in a valuation of 0.8x P/BV and 20.9x P/E PREHL. Gearing of PREHL is reduced from 0.51 to 0.46.
What We Think
Valuation still on the high side. The 0.8x P/BV for PREHL, although better than before, remains on the high side as compared to other Singapore developers. We continue to believe that the high percentage of assets under development warrants a steeper discount. Thesis remains unchanged. Existing shareholders converting into PREHL would compromise on yield, accept higher development risks, higher gearing and wait a much longer time for the portfolio to complete development. While investors can buy PCRT at 0.7x P/BV to be exchanged for PREHL shares at 0.8x P/NTA, we believe PREHL’s shares may de-rate to an average 0.74x P/BV as well. CMA is trading at 0.87x P/BV, but 75% of its assets are operational, while 77% of PREHL’s assets are still under development.
What You Should Do
We make no changes to the thesis which we elaborated in our report on 16 Mar 2014 and keep our recommendation at Reduce. We would continue advocating for a reduced exposure on potential overhang post the announcement.