Mapletree Greater China Commercial Trust - DBS Research 2017-03-30: Climbing the wall of worry

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MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Climbing the wall of worry

Quality will shine through. 

• We maintain our BUY call with a TP of S$1.11 for Mapletree Greater China Commercial Trust (MAGIC). 
• While MAGIC faces the challenge of a stronger SGD and higher property taxes at Gateway Plaza, we believe these factors are only speed humps in the near term. 
• As MAGIC cycles through these headwinds over the next few quarters, the strength of core asset Festival Walk (c.70% of net property income [NPI]), as well as the boost from the Sandhill acquisition, will shine through. 
• Moreover, MAGIC offers an attractive yield in excess of 7% which we believe is too high considering its portfolio of quality properties and exposure to HK.

Where we differ – Market forecast of flat DPU too conservative.

• Consensus is forecasting DPU of 7.2 Scts over the next three years given doubts over the ability of Festival Walk to deliver higher rents. We believe this view is incorrect, given occupancy cost for the mall remains in the middle of the 16-22% range for other malls in HK, there remains a queue of potential tenants wanting to enter the mall, and its focus on local residents rather than Chinese tourists. These factors should result in Festival Walk continuing to deliver positive rental reversions, translating to DPU growth for MAGIC.

Potential Catalyst: Acquisitions and delivery of positive rental reversions despite concerns over a downturn in the HK retail market 

• Full contribution from Sandhill Plaza yet to be realised. With the S$412m acquisition of Sandhill Plaza in Shanghai only completed in June 2015 and Sandhill Plaza’s passing rents being below market, MAGIC’s earnings should receive a boost over the coming year, which should help mitigate any potential nearterm headwinds.

Valuation

• We maintain our DCF-based TP of S$1.11. 
• With 9% upside to our TP and 7.1% yield we maintain our BUY call.

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/ 2017-03-30

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.110 Same 1.110