PCRT – CIMB

Looking towards monetisation

Traditionally a weaker quarter,4Q12 was saddled by pre-operatingcosts for Foshan and Chengdu malls too. Management expect leasing improvements. Of greater interest is a clear direction towards asset trading and strata titling to boost near-to mid-term returns.

4Q/FY12 was in line with consensus and our expectations at 25%/100% of full-year estimates, supported by earn-out structures. Our target price rises as we cut our RNAV discount from 30% to 20% as >90% of the IPO portfolio is now completed. We raise FY13 DPU by 4% and lower FY14 by 6% for balance earn-out structures. Maintain Outperform, with accretive divestments as the catalyst.

Expect weak earnings

Underlying core earnings from JVs were up a marginal 1.5% qoq in 4Q12, bringing FY12 to S$5.4m, below our expectations. Core net profit was also hit by higher-than-expected pre-operating costs for Foshan and Chengdu Qingyang malls. We expect the weak earnings to persist but project the trust to turn profitable in FY13, boosted by revenues from Foshan mall (to commence with target 90% occupancy) and Shenyang office. On the leasing front, pre-commitments stand at 16% for Shenyang office, 60% for Foshan mall and 33% for Chengdu Qingyang mall, with more progress to come in the next few months.

Strategy articulated

Management has reiterated its confidence in the long-term value of its properties but articulated the need for short-term gains to grow the business, through monetising completed assets (recycling capital) and strata sale of non-block retail and office components. FY12 valuations, at 6.5% cap rates (unchanged from FY11), are up to 58% above the purchase price of assets – divestment gains could be substantial.

6.3% yield for FY13-14

Based on management’s target Rmb227m distribution for FY13 and balance earn-out for FY14, we estimate 6.3% yield for the next two years in addition to 10-15% NAV/share growth from FY12’s S$0.70. Valuations are still attractive at 25% discount to RNAV and 0.9x P/BV. Maintain Outperform.