Mixed results
- MCT’s 1QFY16 DPU was in line, at 25% of our and consensus forecasts.
- NPI margins improved on lower utilities expenses, and operating metrics such as rental reversion and occupancy remained healthy.
- However, we remain cautious due to continued weakness in shopper traffic and tenant sales.
- As such, we maintain our Hold rating with an unchanged DDM-based target price (S$1.54) amid minor tweaks to our DPUs.
- Re-rating catalysts could come from improvements in shopper traffic and tenant sales.
Healthy results and operating metrics
- MCT’s 1QFY16 DPU was in line, at 25% of our and consensus forecasts.
- NPI was up 5% yoy, on higher revenue (1.6% higher on positive contributions from VivoCity) and lower property expenses (9.0% lower due to lower utilities expenses).
- Cost of debt inched up to 2.41% (2.28% previously), mainly due to higher interest rates on floating rate borrowings and refinancing of debts with longer tenor borrowings.
- Gearing remained healthy at 36.4%.
Healthy operating metrics.
- Physical occupancy remained stable at 95.5%, and is expected to improve with higher committed occupancy.
- Rental reversion was also healthy at 13-14% for both retail and office leases renewed during the quarter.
- Following the completion of AEI at VivoCity Basement 1, all tenants have commenced business and should contribute positively to earnings from 2QFY16 onwards.
Cautious on lower shopper traffic and tenant sales
- We are cautious due to lower shopper traffic (-6.7% yoy) and tenant sales (-2.0% yoy).
- Management highlighted that the drop in shopper traffic could be partly related to certain more successful events held the previous year, while the drop in tenant sales was related to AEI works and relocation.
- However, we believe these warrant some degree of caution as they represent the third/fourth consecutive quarters of yoy declines in tenant sales/shopper traffic, which could limit future rental upside.
Maintain Hold
- We maintain our Hold rating.
- MCT is trading at 5.6/5.7% 2015/2016 dividend yield, in line with the peer average.
- Re-rating catalysts could come from improvements in shopper traffic and tenant sales.
(TAN Xuan, CFA; PANG Ti Wee; LOCK Mun Yee)
Source: http://research.itradecimb.com/
