STI : 3,179.71
Price Target : 12-Month S$ 0.84
Highlights from China visit
• Portfolio improving operationally
• New completions to boost income visibility
• Maintain Buy, TP S$0.84
Still ramping up. Our site visit to PCRT’s portfolio of assets reaffirms our view that operating performance is improving with 85% of its IPO portfolio completed and operational. Shenyang Longemont Shopping Mall (SLSM) is experiencing higher occupancy of > 80%, better foot traffic and tenant sales, while Shenyang Longemont Office (SLO) is seeing increasing take up rates.
Together with the master leases from Red Star Macalline Furniture Mall and Guangcai International Investment group, an antique wholesaler, we estimate the Shenyang assets has achieved c4.4% NPI yield at present. Hence, we believe the key to driving performance of the Shenyang assets closer to the 7% NPI yield stated during IPO is to increase office and shopping mall occupancy and increase tenant sales. Perennial Jihua Mall in Foshan, which opened in Aug, has a 97% committed occupancy rate and average rent of Rmb3.82 /day. The impact of the expanded earnings base should be felt from FY14.
Chengdu Qingyang Mall and Dongzhan Mall to open in 2014. Chengdu Qingyang is 83% pre-committed to date, having secured key anchor tenants as well as specialty store tenants. The mall is scheduled to open in 1Q14, and is well located within a high density population catchment of middle income and office workers. At the Dongzhan Mall, earthworks have started and pre-leasing has commenced more than a year ahead of completion. To capitalize on the strategic location of the mall, the strategy would be to attract a tenant mix that would generate a recurrent traffic flow by establishing destination services such as clinics, education and wholesale apart from the usual F&B, lifestyle and entertainment activities. For Beijing Tongzhou integrated project, the premium waterfront location would likely ensure strong demand for its residential units when launched.
Maintain Buy. We maintain our Buy call on PCRT with S$0.84 TP for its attractive 0.8x P/bk NAV valuation. As its properties ramp up operations and improve earnings visibility ad sustainability, we believe the gap between share price and asset backing will narrow.
Publish date: 14/10/13