PCRT – DBSV

Continues to execute

• Results lifted by earn out deed support
  
• Operations ramping up, new development assets to extend earnings and RNAV growth visibility
  
• Maintain BUY, TP $0.84
  

Highlights

Results in line. PCRT reported 2H12 DPU of 1.96Scts. Together with the 1.90Scts recorded in 1H12, the group posted FY12 DPU of 3.86Scts, in line with expectations. Underpinning the results was also the inclusion of S$10.7m of earn out deed support (S$21.5m for FY12). At the same time, the group booked in a net portfolio revaluation gain of S$91.2m (Rmb2.9bn) despite taking a 10% writedown for Shenyang Red Star Macalline Furniture Mall (RSMFM), lifting its book NAV to S$0.70.

Slight improvement in operations. Operations-wise, the RSMFM saw higher commitment in occupancy to 71.7% as the master lease for Red Star kicks in while the take up at Shenyang Longemont Shopping Mall (SLSM) remained at 70%. Meanwhile, the committed leases at Perennial Jihua Foshan climbed up to 60% while the Perennial Qingyang Chengdu has 33% of its space taken up in advance. The former is expected to commence operations in 2Q13 while the Chengdu property is expected to open ahead of schedule, in 4Q13 or 1Q14.

Our View

Execution is key. Looking ahead, with 90% of the initial portfolio now completed, the group can focus on ramping up occupation of its properties. It is currently evaluating leases from wholesale tenants for the West Wing of the RSMFM. If successful, this will fully fill the RSMFM. Meanwhile at the SLSM, the group is targeting to lift occupancies, currently at 70%, as well as shopper foot traffic of 40-50k/day. Rental rates have been maintained at Rmb3.72psm/day. At the Shenyang Office component, about 16% of the space has been taken up or committed, at Rmb90+psm/mth. The group would continue to look to boost take up at this property in coming months.

New developments to boost RNAV in the medium term. In addition, the group recently added the Beijing Tongzhou development (10% stake) as well as a ROFR for the retail portion of the Tongzhou project to its development portfolio. This is in addition to the option for the Xian HSR project. This will continue to extend the visibility of earnings and RNAV growth into the medium term. Gearing remains healthy at 19.9%.

Recommendation

Maintain BUY. We continue to like PCRT for its attractive valuations, at 6% yield and 0.9xP/bk NAV. Earnings visibility has improved as the development assets are completed and generating cashflow. Maintain Buy with TP of $0.84.