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Mapletree Greater China Commercial Trust - DBS Research 2016-08-02: Consistent performer

Mapletree Greater China Commercial Trust - DBS Research 2016-08-02: Consistent performer MAPLETREE GREATER CHINACOMM TR RW06.SI 

Mapletree Greater China Commercial Trust - Consistent performer

  • 1Q17 DPU of 1.85 Scts (+9% y-o-y) in line with our expectations.
  • Continued positive rental reversions (+13%) at Festival Walk despite investor fears.
  • Trim FY17-18F DPU by 1-2% to account for weaker CNY and lower occupancy at Gateway Plaza.



Allaying market fears. 

  • We maintain our BUY call with a revised TP of S$1.13 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 the 9% y-o-y increase in 1QFY17 DPU to 1.85 Scts. Moreover, this risk is accounted for by the c.9% discount to MAGIC’s NAV per share of S$1.18.


Festival Walk’s defensive positioning. 

  • 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 have 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.17-18% which is towards the bottom end of the 16-22% range for other malls in HK, this bodes well for rents going forward. This is evidenced by the 13% rental reversions in 1Q17.


Full contribution from Sandhill Plaza yet to be realised. 

  • With the S$412m acquisition of Sandhill Plaza in Shanghai only completed in June 2015, MAGIC’s earnings should receive a boost over the coming year, which should help offset any potential slowdown in HK.


Valuation:

  • After incorporating lower long-term SGDCNY rate of 4.80 versus 4.60 previously, we reduce our DCF-based TP to S$1.13 from S$1.15.


Key Risks to Our View:

  • 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/ 2016-08-02
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.15 Down 1.13


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