OCBC Investment 2015-08-03: Mapletree Greater China Commercial Trust - 1Q16 Results. Defying macro uncertainties.Maintain BUY.

Defying macro uncertainties 

 1QFY16 DPU rose 8.7% YoY 
 Positive rental reversions of 16%- 29% 
 Buying opportunity 

Robust start to FY16 

  • Mapletree Greater China Commercial Trust (MGCCT) reported its 1QFY16 results which met our expectations. 
  • Despite ongoing macroeconomic uncertainties, its gross revenue jumped 19.1% YoY to S$75.9m, and this formed 23.3% of our FY16 forecast. 
  • Festival Walk (FW) contributed a 15.7% increase in revenue to S$54.7m, while Gateway Plaza’s (GP) revenue grew 23.6% to S$20.4m. Sandhill Plaza (SP), which was acquired on 17 Jun 2015, saw its maiden revenue contribution of S$0.8m. 
  • With a full quarter contribution from 2QFY16 onwards, we expect better performances ahead for MGCCT. 
  • DPU of 1.696 S cents was higher YoY by 8.7%, and this constituted 23.6% of our full-year projection. 

Healthy vital signs 

  • Operationally, management achieved positive rental reversions of 16% and 29% at FW’s retail and GP’s office segments, respectively, as at 30 Jun 2015. 
  • Overall portfolio occupancy remained stable at 99% (+0.2 ppt QoQ). 
  • Footfall and tenant sales at FW registered YoY growth of 5.9% and 6.5% to 9.88m and HK$1.3b, respectively, which we believe strongly outperformed the broader Hong Kong retail market. 
  • Another positive sign came from management’s proactive leasing efforts, as 65% of expiring leases in FY16 have already been renewed or re-let. 

Maintain BUY 

  • MGCCT’s gearing ratio increased from 36.2% to 41.2%, as at 3 Jun 2015, due to the acquisition of SP. 86% of its interest cost has been hedged for FY16. 
  • Management has also hedged ~63% of its forecasted FY16 distributable income for both HKD and CNY. 
  • Following MGCCT’s recent share price weakness, we believe its valuations have become more attractive. 
  • The stock is trading at FY16F P/B ratio of 0.83x and offers a prospective distribution yield of 7.3%. 
  • The latter is one standard deviation below its historical average since its IPO. 
  • We maintain our BUY rating, but due to a slightly higher unit base assumption, our fair value is lowered marginally from S$1.11 to S$1.10.

Analyst: Wong Teck Ching Andy

Source: http://www.ocbcresearch.com/