Mapletree Greater China Commercial Trust - CIMB Research 2016-08-01: Staying resilient

Mapletree Greater China Commercial Trust - CIMB Research 2016-08-01: Staying resilient MAPLETREE GREATER CHINACOMM TRUST RW0U.SI 

Mapletree Greater China Commercial Trust - Staying resilient

  • 1QFY17 DPU of 1.85 Scts within expectations at 24.5% of our FY17 estimate.
  • Performance during the quarter underpinned by Festival Walk and Sandhill Plaza. 
  • Challenging operating environment for Gateway Plaza in 1QFY17.
  • Healthy balance sheet and strong earnings visibility.
  • Maintain Add, with our DDM-based target price adjusted to S$1.14.

Buoyed by FW and SP

  • MAGIC reported 1QFY17 revenue of S$85m and NPI of S$69.4m, up 12% and 11% yoy, respectively, as higher Festival Walk (FW) and Sandhill Plaza (SP) contributions offset lower Gateway Plaza (GW) performance. 
  • After netting off higher interest expense (from the acquisition of SP), distribution income grew 10.6% yoy to S$51.3m. 1QFY17 DPU of 1.85 Scts, +9.1% yoy, was in line with our expectations, making up 24.5% of our FY17 projection. There was little overall forex translation impact during the quarter.

Reopening of cinema to boost entertainment and F&B businesses

  • FW’s revenue and NPI rose c.10%/9% yoy to S$60m/S$47.1m, thanks to positive rental reversion of 11-13% for its office and retail renewals. This was despite a 13% drop in tenant sales and shopper traffic with ongoing renovations of a new cinema tenant and a challenging HK retail environment. 
  • The cinema operator reopened in June; this should translate to higher entertainment and F&B contributions. 
  • With a remaining 23% of leases at the property to be re-contracted this year, we expect rental uplift to remain robust.

More competitive operating environment for GW

  • The weaker showing at GW was offset by a full quarter’s contributions from SP. GW reported an 8% dip in NPI to S$16.9m due to 
    1. a decline in occupancy to 95% owing to the more competitive leasing environment with high incoming supply, 
    2. impact of VAT implementation, and 
    3. a depreciation in RMB. 
  • 1QFY17 rental uplift was a modest 6% and we expect rental growth to remain moderate, although completion of the AEI which added 800 sqm of F&B space should enhance tenant experience.

SP enjoyed strong occupancy with good rental uplift

  • On the other hand, SP reported a 28% improvement in renewal rents and full occupancy on healthy demand for business parks space during the quarter due to a decentralisation trend in Shanghai. 
  • With cost savings, favourable tax incentives and improved accessibility, we anticipate this segment of the market to continue to perform well.

Strong income visibility

  • To ensure good income visibility, MAGIC has increased the proportion of fixed rate debt to 80% and hedged 62% of its FY17 distributable income. 
  • Gearing is steady at c.40%. It has about 14% of its debt to be refinanced for the remainder of FY17.

Maintain Add

  • We continue to like MAGIC for its resilient portfolio, underpinned by FW, and good earnings visibility. With gearing at 40%, we think there could be scope for new acquisitions in the medium term. 
  • We tweaked our DDM-TP to S$1.14 following this set of results. 
  • Given the total return upside of 13% to our TP, we maintain our Add call. Downside risks to our call include weaker than expected Beijing office leasing market.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-08-01
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.14 Up 1.12