Mapletree North Asia Commercial Trust - DBS Research 2021-03-16: Position Ahead Of The Imminent Upturn

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Position Ahead Of The Imminent Upturn

COVID-19 risks in Hong Kong diminishing on the back of mass vaccination program and warmer weather.
Festival Walk’s operational performance to see an uplift riding on expected rebound in HK retail sales.
Other commercial assets delivering consistent returns offer stable distributions.

Despite the Manager’s ongoing efforts to diversify Mapletree North Asia Commercial Trust (SGX:RW0U)’s earnings base through strategic acquisitions in the office sector in Japan and Korea, bringing down contribution from Festival Walk to ~55% of revenues (on a stabilised basis), the performance of the mall remains key in Mapletree North Asia Commercial Trust’s outlook and distribution growth.
While its office portfolio continues to churn stable returns to unitholders, we are sensing a possible turnaround in performance for Festival Walk in the coming quarters after 2 years of pressure.

We believe that brighter times are set to arrive for Mapletree North Asia Commercial Trust, especially with warmer weather from April coupled with the rollout of the COVID-19 vaccination program in Hong Kong. The combination of these two are natural antidotes to stem the risk of another spike in cases and hopefully spell the end of the negative impact of COVID-19 as the year progresses.
This will most likely lead to a gradual recovery in the overall retail scene with more relaxed measures, allowing consumers to head back to the malls to spend and dine. This will be positive for Festival Walk, as its financial performance has been under pressure for the past 2 years where the protests in Hong Kong disrupted operations for the mall back in Oct 2019-Jan 2020.
According to data from Bloomberg, the Hong Kong retail sales index has lagged cities in the region (namely Singapore, China) and other more mature markets of USA and Europe where retail sales indexes have rebounded in recent months to ~ 97-133% of pre-COVID-19 levels while Hong Kong’s retail sales index remained at ~30% below pre-COVID-19 levels. We believe this was partially attributed to the several spikes in cases that we saw in Hong Kong coupled with lack of tourists spending which typically accounts for up to ~30% of total sales in Hong Kong.

Taking a leaf from performance of Singapore focused retail and commercial landlords, which staged a strong share price rebound of ~20% upon Singapore entering into phase 3 of reopening of the economy. Phase 3 saw many restrictions lifted and more trades (especially F&B) could operate with more flexibility despite ongoing social distancing measures. We believe that Mapletree North Asia Commercial Trust can mirror this trend in the coming quarters once the risk of a spike in cases recede in Hong Kong coupled with further relaxation of measures leading to stronger tenant sales performance.

Our estimates for Mapletree North Asia Commercial Trust in FY21F is cut to reflect latest business updates where rebates, while getting lesser is still being disbursed in 2HFY21. Our FY21-22F estimates are maintained.
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We believe that Mapletree North Asia Commercial Trust offers good value at 0.7x P/NAV, offering attractive FY21F yield of 7.1%, which is the amongst the highest among overseas focused commercial/retail peers.
Given the strong Sponsor backing and acquisition pipeline in the medium term, we believe Mapletree North Asia Commercial Trust deserves to trade towards the lower end of the peer range of ~6.1%-6.3%.

Derek TAN DBS Group Research | Geraldine WONG DBS Research | https://www.dbsvickers.com/ 2021-03-16

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