Mapletree Commercial Trust - DBS Research 2017-12-11: Room To Surprise On The Upside

MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust - Room To Surprise On The Upside

Increased optimism on the office sector.
Raised earnings from office properties, and expect a faster recovery from FY2020F.
Target Price lifted to S$1.75.
Upgrade from HOLD to BUY.

We like Mapletree Commercial Trust (MCT) for its quality assets with strong earnings visibility and able to ride through market cycles. Both of its key assets - VivoCity and Mapletree Business City Phase 1 (MBC I) - are gems, given the lack of comparable assets in these market segments. We believe these assets will remain resilient during periods of uncertainty.
We raised our TP from S$1.62 to S$1.75 on the back of improving sentiment in the office sector; the REIT has around 30% exposure in terms of NPI.

We believe recent market transactions have refreshed optimism in the office sector and therefore expect a faster recovery from 2020F. Our TP is now 5.4% higher than the consensus mean of S$1.66.

We have assumed conservative rental reversion at VivoCity in the low single-digit going forward. Any improvement in reversions may lead to earnings and share price upside. Better-than-expected performance from MBC I is another catalyst.

Target Price lifted to S$1.75 to reflect higher earnings from office properties, and rolling forward our valuation base to FY18F.
Upgrade from HOLD to BUY with total potential return of c.16%, including yield of 5.5%.

Weaker operational performance from VivoCity. Signs of a slowdown are being observed at VivoCity as anticipated as the mall is gradually phasing into a matured stage. Management has been rigorously revamping the offerings of the mall which could mitigate this risk.

Singapore Research Team DBS Vickers | Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-12-11

DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 1.75 Up 1.620