Mapletree Greater China Commercial Trust - OCBC Investment 2016-09-06: Attractive valuations vis-à-vis its HK listed peers

Mapletree Greater China Commercial Trust - OCBC Investment 2016-09-06: Attractive valuations vis-à-vis its HK listed peers MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust: - Attractive valuations vis-à-vis its HK listed peers

  • Yield spread of 190 bps against peers.
  • Expecting recovery at Festival Walk.
  • Maintain BUY with S$1.18 FV.

Undervalued relative to its Hong Kong listed peers 

  • Following UK’s surprising vote to exit the EU on 23 Jun, Mapletree Greater China Commercial Trust’s (MGCCT) share price has increased 14.4%. This uptick was in-line with its Hong Kong listed REIT peers, which on average registered an appreciation in their stock value by 15.5% during the same period. 
  • However, we believe MGCCT remains undervalued relative to this group of peers. Based on our forecast, MGCCT is currently trading at a forward distribution yield of 6.6%, versus its peers’ Bloomberg consensus average forward yield of 4.7%, which implies a yield spread of 190 bps. 
  • This also compares favourably (+0.6 standard deviation) to the 3-year average yield spread of 159 bps. Hence, we believe MGCCT’s stock still offers value on a relative basis at its current price level.

Expecting continued resilience amid tough operating environment 

  • Total retail sales in Hong Kong fell 7.7% in value YoY for the month of Jul, such that the total retail sales for 7M16 dipped 10.1% versus the same period last year. Similarly, MGCCT’s Festival Walk (FW) experienced a dip in tenant sales by 12.7% YoY to HK$1.1b in 1QFY17.
  • However, we believe this figure was largely skewed by renovation works being carried out by its new cinema operator tenant MCL Cinemas, which only completed in Jun this year. 
  • We expect a recovery at FW from 2QFY17 despite the challenging operating environment, as the reopening of the cinema (featuring eight screens and ~1200 seats) is expected to draw back crowds and boost footfall and sales to the mall.
  • Moreover, we believe FW is able to differentiate itself from its competitors via its strategic location and accessibility which gives it access to the local catchment at Kowloon Tong, coupled with the strength of its brands.

Reiterate BUY 

  • As a result of the aforementioned factors, we reiterate our BUY rating and S$1.18 fair value estimate on MGCCT. The stock is currently trading at 0.9x FY17F P/B.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-09-06
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.180 Same 1.180