Mapletree Greater China Commercial Trust - DBS Research 2017-01-31: Opportunity during a short-term lull

Mapletree Greater China Commercial Trust - DBS Vickers 2017-01-31: Opportunity during a short-term lull MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Opportunity during a short-term lull

  • 3Q17 DPU down 4% y-o-y on higher property taxes and implementation of value added tax.
  • Moderating tenant sales but expect positive rental reversions at Festival Walk.
  • Elevated yield compensates for impact from higher taxes.



Quality will shine through. 

  • We maintain our BUY call with a TP of S$1.11 for Mapletree Greater China Commercial Trust (MAGIC). 
  • While MAGIC faces the challenge of a stronger SGD and higher property taxes at Gateway Plaza, we believe these factors are only speed humps in the near term. 
  • As MAGIC cycles through these headwinds over the next few quarters, the strength of core asset Festival Walk (c.70% of net property income (NPI)) as well as the boost from the Sandhill acquisition will shine through. 
  • Moreover, MAGIC offers an attractive yield in excess of 7% which we believe is high considering its portfolio of quality properties.


Festival Walk’s defensive positioning. 

  • The strong positioning of Festival Walk makes it well placed to weather the headwinds in the HK retail market. The property serves the needs of the local Kowloon Tong community rather than mainland Chinese tourists which have been the main reason for the fall in HK retail sales. 
  • In addition, due to the mall’s strong track record, we understand there remains a queue of potential tenants eager to be located within the mall. This is evidenced by rental reversions of 14% in 9M17.


Full contribution from Sandhill Plaza yet to be realised. 

  • With the S$412m acquisition of Sandhill Plaza in Shanghai only completed in June 2015 and Sandhill Plaza’s passing rents below market, MAGIC’s earnings should receive a boost over the coming year, which should help mitigate any potential slowdown in HK, negative drag from higher property taxes in Beijing, and a potential strengthening SGD.


Valuation

  • We maintain our DCF-based TP of S$1.11. 
  • With 16% upside to our TP and 7.5% yield we maintain our BUY call.


Key Risks to Our View

  • The key risk to our view is a significant downturn in the HK and Chinese economies, causing a decline in rents at Festival Walk, Gateway Plaza and Sandhill Plaza.




Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-01-31
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.11 Same 1.110





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