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Tuesday, 31 May 2011

Perennial China Retail Trust

Perennial China Retail Trust Management Pte. Ltd. ("Perennial" or the "Trust") is offering 563,579,000 units at $0.70 per unit.  According to the prospectus, it is Singapore's first pure play PRC retail development trust. Investors will need to differentiate a business trust from a REIT. This is not a REIT. In other words, it does not need to pay out dividends if it does not have the cash flow from its operations.  I guess one of the reason why this is structured as a business trust is to 'tap' into the fact that a business trust is able to distribute cash to its unit holders out of its cashflow and not necessarily out of its profits.

This is a pure-play on PRC retail owner and developer. The forecast and projected distribution yield for FY2011 is 5.3% and 5.51% for FY2012. The initial portfolio consists of 3 properties in Shenyang, China and one property in Foshan and Chengdu respectively. It is interesting to note that the Trust has secured the option to invest in commercial development sites which connect directly to high speed railway stations in Chengdu and Xi'an and a right of first refusal in similar site in Changsha. High speed train travel is likely to way to go in China and having secured the rights to these sites bode well for the Trust.

The IPO will close on 7 June at 10am.  Cornerstone investors will take up around 46% of the total issued units and the market cap will be around $785m.  The NAV per share is around $0.67 and based on the offering price of $0.70, it is at a slight price-to-book premium of 1.05x. With CNY likely to remain strong against major currencies in the coming years, forex exposure in this regard, will be of a lesser concern to Singapore based investors and will be attractive to investors who want a CNY exposure.

Overall, the revised offering seemed to be more palatable than the initial offering a few months back in March. It is likely due to the weak IPO sentiments, thus the yield has been boosted as well. While the yield is not exactly on the 'high side', it is more attractively priced now and this could be due to the demands from Cornerstone investors as well. I would regard the issue as fairly priced with a slight upside bias as it expose investors to high growth in China and strong CNY exposure.


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Edwin said...


I was doing a search on Artivision when I found your blog. Interestingly that a loss making company can IPO in Singapore.

I'm a founder of a local software house specialise in Online Accounting Software. Netiquette Software is the company, we are also trying to explore way to get listed in Singapore as we are seeking funds to expand beyond Singapore.

Similarly, there is a New Zealand company "Xero" ( and they are very much like us. Except that we focus different market.

Our revenue module will take 2-3 years to turn profit and Netiquette has turn profit from 2011.

Can you advise if there is anyone I can speak to on the IPO for my company?

2Y Capital said...

Hi Edwin,

you can try approaching the Artivision's sponsor, Collin Stewards or another Catalist specialist, Prime Partners both in Singapore

Anonymous said...

There are many factors leading to fall ever since it wass listed on 9 June 2011:

1. Unattractive Dividend Yield:
Same price range, similar counters such as Starhill Global is offering higher yield of 6.24%. There are even higher yield counters with lower prices.

2. Totally exposed in China:
With the recent accounting fraud involving Sino companies listed in Singapore and USA, investors have lost their appetite for China related stocks or companies with operations in China

3. Unattractive Valuation:
The listing price of $0.70 is about 1.04 times the book value of $0.67. There are counters in the range of 0.6 to 0.9 range then.

Unless there is a marked appreciation in the distributable income, there will hardly be any significant increase in the price.

The current traded price of $0.58 represent a dividend yield of 6.4% for FY2011 and 6.65% for FY2012. Given the low investment appetite for China related stocks, investors may require a higher premium to hold it.

I would suggest that buying interest only if price dropped to $0.53, representing a dividend yield of 7%.

2Y Capital said...

thanks for the write up! Would be good if you have identified yourself :)

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