Analysts are generally positive on Mapletree North Asia Commercial Trust (MNACT) despite the trust announcing in its business update that 1Q21 gross revenue fell 10.7% y-o-y to $93.7 million, while NPI fell 19.5% y-o-y to $68.5 million.
Furthermore, Hong Kong announced the ban of restaurant dine-ins, and gatherings of more than two people within the special administrative region (SAR).
See: MNACT posts 19.5% fall in 1Q20/21 NPI to $68.5 mil in business update
Nonetheless, DBS Group Research lead analyst Derek Tan says, “While it is easy to pinpoint the negatives for the stock, we believe it has been overly penalised despite its earnings diversity.”
DBS has a “buy” call on MNACT with a target price of $1.05.
The analyst believes that investors’ concerns over further rental reliefs have already been priced in the stock. But for now, estimates are kept, pending the outcomes of relief programmes come 2Q21, with the possibility of estimates being trimmed if the situation persists.
But given that MNACT derives some 54% of its NPI from its commercial (office) properties in China and Japan whose performance is expected to be more stable, the analyst believes that investors have overly punished MNACT.
Meanwhile, retail sales plunged by 38.6% while footfall stood at 44.9% in the quarter. “We understand that among the diverse trades in the mall, the F&B trades did well, the fashion trades, however, remained under pressure given the lower footfalls,” adds Tan.
Given the rise in adoption of online shopping including food delivery, the manager looks to work with delivery platforms and will be introducing a mobile app (with loyalty programme) which may lift retailers overall revenues and keep Festival Walk relevant in the Hong Kong retail ecosystem.
OCBC Investment Research also has kept its “buy” recommendation with a fair value estimate of $1.09.
In a July 28 report, OCBC says, “The continued headwinds and uncertainties are expected to adversely impact MNACT’s performance in FY21, but we believe the negatives are in the price.”
Taking into account recent developments, such as the ban on dining in restaurants and gatherings of more than two people due to the resurgence of Covid-19 infections in Hong Kong, OCBC is lowering its FY21 and FY22 DPU forecasts by 4.4% and 3.0% respectively.
“We also ease our terminal growth rate assumption by 25 bps to 1.25%. Consequently, our fair value estimate declines from $1.13 to $1.09,” adds OCBC.
Similarly, CGS-CIMB is recommending investors “add” MNACT but with a lowered target price of $1.12 from $1.26 previously.
MNACT’s Festival Walk (FW) saw 1Q21 1 tenant sales and shopper footfall declining 38.6% and 44.9% y-o-y, respectively, impacted by the Covid-19 outbreak. The trust also extended $17.9 million in rent reliefs to FW retail tenants. It also launched marketing and promotional activities to drive more sales and shopper traffic.
Previously, FW suffered some physical damage due to demonstrations that occurred in Hong Kong. But MNACT has insurance coverage on physical damage and business interruption which covers for the loss of rental income, whereby part of this has already been paid by the insurers.
“Going forward, the retail environment in HK SAR remains challenging and would likely continue to put pressure on reversions and occupancy, in our view,” says analyst Lock Mun Yee in a July 28 report.
On the other hand, MNACT’s other properties in China and Japan are showing stronger resiliency.
Sandhill Plaza (SP) in Shanghai continued to achieve higher average rents due to robust demand for more affordable decentralised office space.
Japan portfolio occupancy improved to 97.7% in 1Q on higher take-up at its newly-acquired mBay Point Makuhari Building (MBP) and Monzen-nakacho Building (MON) assets, while rental reversion uplift averaged 8%. MNACT said it would continue to focus on tenant retention for a stable office income base.
As at 11.10am, units in MNACT are trading at 86 cents or about 0.8 times FY21 book with a dividend yield of 6.8%.
