Mapletree Greater China Commercial Trust - OCBC Investment 2016-02-02: Another quarter of double-digit growth

MAPLETREE GREATER CHINACOMM TR RW06.SI

Mapletree Greater China Commercial Trust: Another quarter of double-digit growth

 3QFY16 DPU rose 11.6% YoY

 Positive rental reversions of 29%- 42%

 Compelling valuations

Mapletree Greater China Commercial Trust (MGCCT) reported a solid set of 3QFY16 results which came in within our expectations.

Gross revenue jumped 19.8% YoY to S$88.2m, aided by additional contribution from Sandhill Plaza (SP), which was acquired on 17 Jun 2015, rental uplifts from its two other malls and positive FX movements. DPU grew 11.6% to 1.854 S cents.
For 9MFY16, MGCCT’s gross revenue accelerated 21.4% to S$248.8m, while DPU of 5.342 S cents represented a growth of 10.9%.
The former and latter constituted 76.2% and 74.3% of our FY16 forecasts, respectively.

Management achieved strong positive rental reversions of 42% and 29% at Festival Walk’s (FW) retail and Gateway Plaza’s (GP) office segments, respectively, as at 31 Dec 2015.
The strong rental reversion at FW was attributed largely to a replacement lease signed with a new cinema operator, with operations expected to commence in 1QFY17. Excluding this, FW would still have delivered a rental uplift of 22% in 9MFY16.
However, rental growth is expected to moderate ahead, given headwinds facing the sector.
Overall portfolio occupancy stood at 98.7%, a slight increase of 0.3 ppt on a QoQ basis (FW and SP fully occupied).
91% of MGCCT’s expected distributable income in FY16 (comprising both HKD and RMB) has been hedged into SGD.

We are keeping our forecasts intact given this set of in-line results.
However, we are increasing our cost of equity assumption on MGCCT from 8.2% to 8.7% to take into account the heightened volatility seen in the financial markets in recent weeks and growth concerns emanating from China. This results in our fair value estimate being lowered from S$1.10 to S$1.03.
Notwithstanding our decreased fair value, we opine that valuations for MGCCT remain compelling.
The stock is trading at FY16F distribution yield of 8.5%, representing two standard deviations above its average since its IPO; while MGCCT’s FY16F P/B ratio of 0.72x is 1.5 standard deviations below its mean since listing. Reiterate BUY.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-02-02

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 1.03 Down 1.10