Perennial Real Estate Holdings - Dragged by revaluations and impairment losses

FY16 results highlights  PREH posted FY16 net profit of S$35.1m, -39.6% yoy on a 6.4% dip in revenue to S$110.2m. Although full-year revenue was slightly ahead of our estimate, net profit was below largely due to impairments and revaluation losses taken for the Shenyang Red Star Macalline Furniture Mall and Eden Residences in Singapore, partly offset by revaluation surplus from the Perennial International Health and Medical Hub. Stripping out exceptionals, core net profit would have been S$0.3m, 37% of our forecast.    Singapore impacted by impairments and lower rental income  Singapore made up 54% of FY16 revenue and 16% of EBIT. Revenue fell 4.4% yoy due to lower rental income from TripleOne Somerset on lower occupancy after commencement of AEI. EBIT was adversely impacted by impairment provisions for Eden Singapore and revaluation deficit from Capitol Singapore. PREH recently monetised part of its stake in TripleOne Somerset to Shun Tak and this could create some income vacuum from FY17 onwards.      China earnings growth likely to be 2H loaded  In China, committed occupancy at the Perennial International Health and Medical Hub has crept up to 60% and is scheduled to be operational from 3Q17. In addition, one tower at Chengdu Plot D is expected to be handed over to Chengdu Xiehe Eldercare Home and is expected to commence operations in 3Q17. P1 is expected to have a capacity of 960 beds and pre-marketing activities for these homes have started.    Maintain Add  We think FY17 earnings would likely be back-end loaded with new contributions from Chengdu expected to be felt from 3Q17. Hence, we cut our FY17-18F EPS to factor in the reduced stake in TripleOne Somerset and push out the pace of contributions from Chengdu and Beijing projects as well as delay the sale of the remaining Eden Singapore units. Our RNAV falls to S$1.79, and our TP is cut to S$1.08 (a 40% discount to RNAV). Key risk is slower-than-expected roll-out of its property and healthcare business.