Perennial China Retail Trust

CIMB: Perennial China Retail Trust | PDF

St James tweaks offer, our thesis remains
PCRT SP / PCRT.SI | REDUCE - Maintained | S$0.55 - TP: S$0.50
Mkt.Cap: US$498.00m | Avg.Daily Vol: US$0.77m | Free Float: 44.00%
REIT | Author(s): Xuan TAN +65 6210 8698, Donald CHUA

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▊ St James announced that it will not be issuing the 52m shares as previously disclosed in its plan for a reverse takeover of Perennial. There are also adjustments to the issue price, EPS and NTA/share, resulting in a valuation of 0.8x P/BV and 20.9x P/E for PREHL. Even so, this latest development does not change our view that the deal is not attractive enough for the shareholders of PCRT, as elaborated in our report on 16 Mar 2014. We maintain our Reduce rating and RNAV-based target price.

What Happened
St James announced that it will not be issuing the 52m shares as previously disclosed in its plan for a reverse takeover of Perennial. There are also adjustments to the issue price, NTA/share and EPS. The adjusted issuance price is now S$1.3353/share. The adjusted NTA/share and EPS result in a valuation of 0.8x P/BV and 20.9x P/E PREHL. Gearing of PREHL is reduced from 0.51 to 0.46.

What We Think
Valuation still on the high side. The 0.8x P/BV for PREHL, although better than before, remains on the high side as compared to other Singapore developers. We continue to believe that the high percentage of assets under development warrants a steeper discount. Thesis remains unchanged. Existing shareholders converting into PREHL would compromise on yield, accept higher development risks, higher gearing and wait a much longer time for the portfolio to complete development. While investors can buy PCRT at 0.7x P/BV to be exchanged for PREHL shares at 0.8x P/NTA, we believe PREHL’s shares may de-rate to an average 0.74x P/BV as well. CMA is trading at 0.87x P/BV, but 75% of its assets are operational, while 77% of PREHL’s assets are still under development.

What You Should Do
We make no changes to the thesis which we elaborated in our report on 16 Mar 2014 and keep our recommendation at Reduce. We would continue advocating for a reduced exposure on potential overhang post the announcement.

(18-03-2014, 09:10 AM)cfa Wrote: Bought some at 0.55 , make or break ?

You seem optimistic about the outcome, but market seem to think otherwise, mind sharing your thoughts?

(18-03-2014, 01:33 PM)MINX Wrote:

(18-03-2014, 09:10 AM)cfa Wrote: Bought some at 0.55 , make or break ?

You seem optimistic about the outcome, but market seem to think otherwise, mind sharing your thoughts?

I feel market had overreacted to this not-so-easy-to-understand deal . Many choose to sell and get out. At this level , as highlighted by g.g. in one of his posting , a higher margin for error is presented , even better than the 3 Towkays. I just go by the gut feel, it is either make or break. What is certain is the uncertainty .

(18-03-2014, 01:53 PM)cfa Wrote:

(18-03-2014, 01:33 PM)MINX Wrote:

(18-03-2014, 09:10 AM)cfa Wrote: Bought some at 0.55 , make or break ?

You seem optimistic about the outcome, but market seem to think otherwise, mind sharing your thoughts?

I feel market had overreacted to this not-so-easy-to-understand deal . Many choose to sell and get out. At this level , as highlighted by g.g. in one of his posting , a higher margin for error is presented , even better than the 3 Towkays. I just go by the gut feel, it is either make or break. What is certain is the uncertainty .

Absolutely, the deal remains shrouded with uncertainties even the corporate finance bloak also got confused and issued an amended release this morning... lol...

http://infopub.sgx.com/FileOpen/Unity_Su...eID=288960

Under 2.3, NTA revised down to $1.688 (50.1% acceptance) and $1.621 (100% acceptance).

In addition, the following uncertainties remained as well:

The Offer will not be made unless and until the Pre-Conditions stipulated are fulfilled:
Completion of the Proposed Acquisition (As good as done)
Completion of the Proposed Share Consolidation (As good as done)
Approval from St. James shareholders on making the Offer (As good as done)
- they forgotten one or they choose to take it for granted - at least 50.1% acceptance from PCRT

Completion of Proposed Transactions expected to be in 2H2014

GG

I wonder why the cimb analysts have to downgrade with reduce target price. Pcrt has the double benefits. Either the shareholders hold the current status, or swap with newco. If extending further, if by the current status, pcrt has no future, the Market should welcome the chance to swap to a newco, as with St. James.

vested

(18-03-2014, 02:09 PM)greengiraffe Wrote:

(18-03-2014, 01:53 PM)cfa Wrote:

(18-03-2014, 01:33 PM)MINX Wrote:

(18-03-2014, 09:10 AM)cfa Wrote: Bought some at 0.55 , make or break ?

You seem optimistic about the outcome, but market seem to think otherwise, mind sharing your thoughts?

I feel market had overreacted to this not-so-easy-to-understand deal . Many choose to sell and get out. At this level , as highlighted by g.g. in one of his posting , a higher margin for error is presented , even better than the 3 Towkays. I just go by the gut feel, it is either make or break. What is certain is the uncertainty .

Absolutely, the deal remains shrouded with uncertainties even the corporate finance bloak also got confused and issued an amended release this morning... lol...

http://infopub.sgx.com/FileOpen/Unity_Su...eID=288960

Under 2.3, NTA revised down to $1.688 (50.1% acceptance) and $1.621 (100% acceptance).

In addition, the following uncertainties remained as well:

The Offer will not be made unless and until the Pre-Conditions stipulated are fulfilled:
Completion of the Proposed Acquisition (As good as done)
Completion of the Proposed Share Consolidation (As good as done)
Approval from St. James shareholders on making the Offer (As good as done)
- they forgotten one or they choose to take it for granted - at least 50.1% acceptance from PCRT

Completion of Proposed Transactions expected to be in 2H2014

GG

maybe there is really no condition for 50.1% acceptance. The tycoons are giving their 27%+ for St James shares no matter what...

(18-03-2014, 02:17 PM)cyclone Wrote: I wonder why the cimb analysts have to downgrade with reduce target price. Pcrt has the double benefits. Either the shareholders hold the current status, or swap with newco. If extending further, if by the current status, pcrt has no future, the Market should welcome the chance to swap to a newco, as with St. James.

vested

Makes sense. I think market is contruing that the tycoons are bailing out of PCRT at 0.70 IPO price.

(18-03-2014, 02:17 PM)cyclone Wrote: I wonder why the cimb analysts have to downgrade with reduce target price. Pcrt has the double benefits. Either the shareholders hold the current status, or swap with newco. If extending further, if by the current status, pcrt has no future, the Market should welcome the chance to swap to a newco, as with St. James.

vested

Mind expaning why you think PCRT has no future if it remain status quo?

It is merely a back door listing of a company. Nothing more than that.

the takeover of PCRT does not even try to get more undertaking from more shareholders of PCRT, which includes Mr. Martua Sitorus, a business associate of Mr. Kuok Khoon Hong(co-founder of Wilmar), holding almost 6% of PCRT according to annual report of 2012.

What does that tell you?

(18-03-2014, 03:48 PM)freedom Wrote: It is merely a back door listing of a company. Nothing more than that.

the takeover of PCRT does not even try to get more undertaking from more shareholders of PCRT, which includes Mr. Martua Sitorus, a business associate of Mr. Kuok Khoon Hong(co-founder of Wilmar), holding almost 6% of PCRT according to annual report of 2012.

What does that tell you?

Beats me, they still lack at least another 23% to push through the deal?