Mapletree Commercial Trust - DBS Research 2017-04-26: MBC I – Promises Delivered

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MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust - MBC I – Promises Delivered

• FY17 DPU up 6% to 8.62Scts, thanks to MBC I.
• NAV 3% higher due to revaluation gains.
• Rental reversion was 14% and 9% for retail and office/business parks for FY17.
• Trimmed DPU estimates by 2-3% due to slowdown at VivoCity and weakening performance at PSA.
• Maintain BUY.

BUY, TP S$1.62. 

• Mapletree Commercial Trust (MCT) owns one of the best malls and business parks in Singapore, hence deserves to trade at a premium to NAV. Both assets are gems given the lack of supply in these market segments, and we believe they will remain resilient during periods of uncertainty.

Where we differ. 

• Our DPUs are slightly above consensus. We believe that VivoCity’s net property income (NPI) margins can surprise on the upside (versus consensus) given its ability to use the space more efficiently. This will more than compensate for the higher finance costs as a result of MBC I acquisition. 
• Our DPU forecasts for FY17 and FY18 are 3.8% and 1.6% higher than consensus’ mean estimate. 
• Despite our slightly more aggressive DPU estimates, our TP is in line with the market average due to a higher discount factor used as we have assumed higher cost of debt.

Potential Catalyst: Stronger than expected rental reversions at VivoCity and Mapletree Business City 1 (MBC I).

• More upside potentials from VivoCity and MBC I. 
• We have assumed conservative rental reversion at VivoCity in the low single-digits going forward. Any improvement in reversions may lead to share price upside. 
• Moreover, the management has guided for c.40% top line growth as a result of the MBC I acquisition which we have incorporated in our model. Better than expected performance from MBC I is another catalyst.

Valuation

• We have revised our DPU forecasts down by 2-3%. TP unchanged at S$1.62. 
• The stock offers dividend yield of over 5.5%, and total potential return of around 9%. Maintain BUY.

Key Risks: Weaker operational performance from VivoCity.

• While VivoCity’s performance has been very encouraging, the mall is gradually phasing into a matured stage with potential decline in growth ahead. 
• The timely acquisition of MBC I, which is in a segment seeing high demand, should mitigate any slowdown.

Singapore Research Team DBS Vickers | Mervin SONG CFA DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-04-26

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.620 Same 1.620