Mapletree Greater China Commercial Trust - DBS Research 2016-04-28: Delivers again

MAPLETREE GREATER CHINACOMM TR RW06.SI

Mapletree Greater China Commercial Trust - Delivers again

4Q16 DPU of 1.923 Scts in line with expectations.
Strong rental reversions but weak tenant sales partially due to renovations at the cinema at Festival Walk.
Gearing drops below 40% with NAV per unit rising to S$1.23.

We maintain our BUY call with a revised TP of S$1.15 for Mapletree Greater China Commercial Trust (MAGIC).
While acknowledging concerns over the slowdown in the HK retail market, we believe this is overplayed near term, given c.11% y-o-y increase in FY16 DPU of 7.248 Scts. Moreover, this risk is accounted for by the c.23% discount to MAGIC’s NAV per share of S$1.23.

Despite the headwinds from the slowing HK retail market, we believe the strong market positioning of Festival Walk makes it well placed to weather the current headwinds. Located in Kowloon Tong’s mid to upper residential area and next to City University of Hong Kong, it serves the needs of the local community rather than mainland Chinese tourists which has been the main reason for the fall in HK retail sales.
In addition, due to the mall’s strong track record, we understand there remains a queue of potential tenants eager to be located within the mall.
Combined with occupancy costs of c.17.8% which is towards the bottom end of the 16-22% range for other malls in HK, this bodes well for rents going forward.

With the S$412m acquisition of Sandhill Plaza in Shanghai only completed in June15, MAGIC’s earnings should receive a boost over the coming year, which should help offset any potential slowdown in HK.

As we roll forward our valuation base to FY17, we raise our DCF-based TP to S$1.15 from S$1.11.
With 16% capital upside and 7.7% yield, we reiterate our BUY call.

The key risk to our view is a significant downturn in the HK and Chinese economies, causing a decline in rents at Festival Walk, Gateway Plaza and Sandhill Plaza.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-04-28

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.15 Up 1.11