Mapletree Commercial Trust - Maybank Kim Eng 2015-10-21: Helped by haze and holidays

MAPLETREE COMMERCIAL TRUST N2UY.SI

Mapletree Commercial Trust - Helped by haze and holidays

2Q results in-line. Revenue subdued, cost savings drive NPI.
Improved operating metrics largely due to haze and holidays.
Maintain SELL with unchanged TP. Continue to least prefer retail SREITs due to over supply and demand headwinds.

MCT’s 2Q3/16 headline results produced no surprises. Revenue was SGD71.3m (+1.9% YoY, +2.2% QoQ,), and NPI was SGD54.8m (+5.1% YoY, +1% QoQ,), while DPU was 2.02 Scts (+2.5% YoY, +0.5% QoQ).
Of our full year DPU expectations, 50.2% have been met.
As with 1Q, NPI growth was faster due to cost savings from utility service contracts.
Underlying retail sentiment remains weak, as rent reversions slowed yet again to 13.2% (1Q: 14.4%). This quarter’s operating metrics actually improved, with shopper traffic up 3.1% and tenant sales up 5.5%, reversing four and three straight quarters of decline, respectively.
Management believes that the volume improvement is due to more public holidays than usual (SG50, elections) and the haze driving traffic indoors.
As for the office assets (32% NPI), occupancies for PSAB and Anson improved to 93.4% (1Q: 91%) and 91.8% (1Q: 87.5%), in line with the committed occupancies of 94.7% and 99.1%.
As the lease expiry profile for the office assets are low at 0.5%/1%/10.5% (FY3/16-18), MCT will largely skirt the 2H16 deluge of office supply.

In line with our 9th October report, we reiterate our concerns about the retail SREIT sector: strong supply until 2017, ecommerce, labour restrictions, a “tired” product, and weak demand from low employment and income growth.
Our flat and largely unchanged DPU forecasts reflect this.
We maintain SELL with unchanged TP (S$1.11) based on applying our yield target of 7.25% to FY3/17 DPU.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-10-21

Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.11 Same 1.11