Brokers' Call: Perennial Real Estate

Perennial Real Estate | Buy

April 6 close: $0.85

Target price: $1.05

Broker: DBS Group Research, April 6

Perennial Real Estate Holdings (PREH) has entered a 40:60 joint venture with Qingjian Group to develop Goodluck Gardens, a freehold residential site. Total gross development value could range up to $970 million to $1.1 billion.

While Qingjian can be seen as sharing the project risk with PREH, we note the consortium (PREH-Qingjian) has two bids for the Holland Village site and if awarded, will add significant exposure to the local property market.


Sheng Siong Group (SSG) | Buy

Target price: $1.20

April 3 close: $0.945

Broker: Maybank Kim Eng, April 2

Excessive concerns about e-commerce disruptions led to 12-month underperformance of 10 per cent against the Straits Times Index, despite its results resilience.

SSG continues to offer convenience, focusing on fresh foods in densely populated HDB estates.

We resume coverage with a Buy rating, expecting catalysts from: 1) further improvements in consumer spending; 2) SSG's further market-share wins from convenience stores and traditional market grocers; 3) a potential surge in new stores in 2018; and 4) continued good results, supporting high return on equity and dividends.

We have also not included potential contributions from its new store in China, opened in Q4 2017.


Keppel Corporation | Add

Target price: $10.00

April 3 close: $7.73

Broker: CGSCIMB, April 2

Keppel Land China will recognise around $270 million of gain from divestment of 100 per cent stake in Keppel China Marina Holdings after clearing objections by a minority shareholder.

We expect Q1 2018 earnings to be supported by the gain.

Offshore and marine may reach almost break-even without kitchen-sinking provisions. Catalysts ahead include: 1) a successful sale of delayed rigs to unlock working capital; and 2) higher dividend potential from more asset recycling in the property division.

The stock is cheap at 1.1 times its estimated FY18 price to book value, below its 20-year average of 1.7 times.

We believe ROE bottomed in FY17 and is set to recover on minimal capital expenditure and earnings growth.

Risks could come from noises from litigation.


Viva Industrial Trust | Buy

Fair value: $0.93

April 2 close: $0.885

Broker: OCBC Investment, April 2

In March, the manager of Viva Industrial Trust (VIT) announced that it has agreed with the ESR-Reit manager to extend the period of exclusivity.

Should an agreement on the merger be reached, we believe the share swap ratio will likely be at least dividend-neutral in order to entice the VIT unit holders to accept the offer.

On the other hand, should the relevant parties fail to reach an agreement, we expect the uncertainty associated with ongoing talks to be alleviated, which may in turn help the unit price recover to prior levels.


Ascendas Reit | Buy

Target price: $3.05

April 2 close: $2.66

Broker: Maybank Kim Eng, March 29

Singapore's industrial sector has bottomed out and supply will take a year to get absorbed.

There is demand softness for older business park buildings, but newer assets and one-north cluster properties are fully occupied.

Demand is supported by growth in technology companies, but oil and gas sector activity is still very quiet.

A version of this article appeared in the print edition of The Straits Times on April 09, 2018, with the headline 'Brokers' Call: Perennial Real Estate'. Print Edition | Subscribe