Mapletree Commercial Trust (MCT SP) - Maybank Kim Eng 2018-04-25: More Not Less; Upgrade To HOLD

Mapletree Commercial Trust (MCT SP) - Maybank Kim Eng 2018-04-25: More Not Less; U/g To Hold MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust (MCT SP) - More Not Less; Upgrade To HOLD


Downside limited, earnings visibility improved

  • Mapletree Commercial Trust (MCT)'s shares have decreased 3% since our SELL rating on 2 Jan 2018 (as the market rose 11%) and no longer have compelling downside to our revised Target Price. In addition, earnings visibility has improved due to expansions and AEI at VivoCity. Accordingly, we upgrade the MCT from SELL to HOLD. 
  • We have revised up estimates by 0.3% and our Target Price by 3.4% following better than expected 4Q/FY18 results. Our revised Target Price of SGD1.50 is based on an unchanged DDM-based Target Price (WACC: 7.1%, LTG: 1.2%).



Challenges and opportunities; VivoCity a real plus

  • With looming challenges from e-commerce disruption still at an early stage, we remain cautious on Singapore’s retail sector, despite recovering macro fundamentals and improving property market sentiment. To its credit, MCT has executed well on driving contributions from VivoCity, with 99.5% committed occupancy at end-Mar 2018, rental reversion above +1.5%, and +0.7% in tenant sales growth in FY18. 
  • Looking ahead, we expect management to work hard on its asset management of VivoCity in maintaining its relevance as a destination mall.


Visibility from new leases, expansions and AEIs

  • The ongoing AEI at VivoCity - addition of a public library at Level 3 and the 24,000 sf bonus GFA to extend Basement 1 – remain on track for completion in phases by 3Q19, with ROI estimated at 10% on a stabilised basis, according to management. 
  • Entertainment space, ‘Timezone’ has been relocated from Level 3 to 2 in order to expand the space by 80% to 11,800 sf to accommodate a flagship arcade that will be fully operationally in 4Q18. 
  • Meanwhile, anchor tenant to VivoCity, Zara is set to double its space and deepen its local presence with the opening of a 33,000 sf concept store, its largest here, by 1Q19.


Swing Factors 


Upside 

  • Earlier-than-expected pick-up in leasing demand for retail, office and business park space driving improvement in occupancy. 
  • Better-than-anticipated rental reversions. 
  • Accretive acquisitions or redevelopment projects. 

Downside 

  • Prolonged slowdown in economic activity could reduce demand for retail, office, and business park space resulting in lower occupancy and rental rates. 
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate. 
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.





Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-04-25
SGX Stock Analyst Report HOLD Upgrade SELL 1.50 Up 1.450



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