SINGAPORE (Dec 11): DBS is upgrading Mapletree Commercial Trust (MCT) on renewed optimism in the office sector after recent market transactions.
In a Monday report, analyst Derek Tan likes MCT for its quality assets with strong earnings visibility and ability to ride through market cycles.
DBS says key assets -- VivoCity and Mapletree Business City Phase 1 (MBC 1) -- should remain resilient during periods of uncertainty and a rarity in their respective market segments.
Contrary to consensus view, Tan also expects faster recovery in the office sector from 2020.
Meanwhile, upside potential from VivoCity and MBC 1 are potential stock price catalyst.
“Our target price is now 5.4% higher than the consensus mean of $1.66,” says Tan.
DBS has assumed conservative rental reversion at VivoCity in the low single-digit. Any improvement in reversions may lead to earnings and share price upside.
Better-than-expected performance from MBC 1 is another catalyst.
“Target price lifted to $1.75 to reflect higher earnings from office properties, and rolling forward our valuation base to FY18,” says Tan.
“Upgrade to “buy” from “hold” with total potential return of 16%, including yield of 5.5%,” he adds.
Units in MCT are up 2 cents at $1.60 with 5.5% forecast yield for FY18.
