Perennial exploring en-bloc sale of AXA Tower

AXA tower perennial

2Q results highlights
PREH reported a 2Q18 EBIT of S$41.9m, -26.5% yoy, on a 1.6% improvement in revenue to S$18.1m. Stripping out revaluations and other one-off gains, EBIT would have been marginally higher yoy. Net profit fell a greater 49.5% yoy to S$8.6m, eroded by lower EBIT and higher finance cost due to the consolidation of Capitol Singapore’s debt and new loans to fund new investments. For 1H, net profit came in at S$13.8m, -75.3% yoy. Excluding one-offs, we estimate the group would have recorded a core net loss in 1H18 of S$12.9m, below our expectations.

PIHMH opened in Jun
Topline improvement came from the consolidation of Capitol Singapore’s revenue, improved performance at Perennial Qingyang Mall and Perennial Jihua Mall, as well as new contributions from Perennial International Health and Medical Hub (PIHMH), which commenced operations in Jun 2018. The latter achieved committed occupancy of c.92.8% at end-2Q18.

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China development projects progressively constructed
Construction activities at other development projects, such as in Beijing Tongzhou, are ongoing, with all six construction permits obtained. P1 and P2 are expected to complete in 2021 and 2020. In Xian North, tower façade cladding works are in progress on Plot 4 and excavation works are ongoing at Plot 5. PREH’s 45% JV vehicle was awarded a Rmb718m land tender in Tianjin to develop 3 plots adjacent to the Tianjin South High Speed Railway. These projects should impact the bottomline from the next 2-3 years.

High occupancy in Singapore assets, hotel to open in Oct
Meanwhile, in Singapore, AXA Tower had a committed occupancy of 90.8% at end 2Q18 while CHIJMES was 98.4% occupied. In tandem with the buoyant office investment market, PREH is also exploring enbloc sale opportunities for AXA Tower. It has started the revamp of Capitol Piazza with two new first-in-Singapore F&B names and has appointed Kempinski to operate the Capitol Kempinski Hotel Singapore, scheduled to open on 1 Oct 2018. Booking channels for the hotel opened from 15 Jul 2018.

Net debt-to-equity ratio increased to 0.74x
Post consolidation of Capitol Singapore’s financials, PREH’s net debt stands at S$2.9bn or a net debt-to-equity ratio of 0.74x, while weighted average interest cost is at 3.7%. The group has S$666m of loans expiring in the remainder of this year, of which S$300m is a retail bond due in Oct 18.

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Maintain Add
We leave our FY18-20F earnings estimates unchanged and maintain Add rating. Our TP of S$0.99 is based on a 50% discount to RNAV. Potential catalyst is faster-than-expected ramp-up of Capitol Singapore and the China development projects, while downside risks include slower-than-expected operational improvements

Source: CIMB