Mapletree Commercial Trust - DBS Research 2017-03-30: On Track towards the Future

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MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust - On Track towards the Future

BUY, TP S$1.62. 

• Mapletree Commercial Trust (MCT) owns one of the best malls and business parks in Singapore, and hence deserves to trade at a premium to NAV. 
• Both assets are gems, given the lack of supply in the market’s segments, we believe these properties will continue to remain resilient even in the period of uncertainties.

Where we differ. 

• Our DPUs are slightly above consensus. We believe that VivoCity’s NPI margins can surprise on the upside (versus consensus) given its ability to use the space more efficiently. This will more than compensate for the higher estimated finance costs. Our DPU forecasts for FY17 and FY18 are 3.8% and 1.6% higher than concensus’s mean estimates.
• Depsite slightly more aggressive DPUs than consensus, our TP is in line with the market average due to a higher discount factor used as a result of higher cost of debt assumed.

Potential Catalyst: Stronger than expected rental reversions at VivoCity and MBC I 

• More upside potentials from VivoCity and MBC I. Although our DPU forecasts are slightly more aggressive than consensus, we have made conservative assumptions of low single-digit rental reversion at VivoCity over the next two years. Any improvement in rent renewals may bring upside to the share price. 
• Moreover, the Management has guided for c.40% top line growth as a result of the MBC I acquisition which we have incorporated in our model. Better performance realised from the new asset could be another positive catalyst.

Valuation

• Our DCF-backed TP is S$1.62. The stock offers a dividend yield over 5.5%, and a total potential return c.15%. 
• Maintain BUY.

Key Risks: Weaker operational performance from VivoCity 

• The mall is gradually phasing into a matured stage with potential decline in growth ahead. The timely acquisition of MBC I, still a segment in high demand, should mitigate the slowdown at the portfolio level.

Singapore Research Team DBS Vickers | Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-03-30

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.620 Same 1.620