SINGAPORE (April 26): DBS says Mapletree Commercial Trust deserves to trade at a premium to NAV given that it owns one of the best malls and business parks in Singapore.
(See also: Mapletree Commercial Trust says 4Q DPU up 12% to 2.26 cents)
Both assets are “gems” given the lack of supply in these market segments and DBS believes they will remain resilient during periods of uncertainty.
“We believe that VivoCity’s net property income (NPI) margins can surprise on the upside (versus consensus) given its ability to use the space more efficiently,” says Mervin Song in a Wednesday report.
This will more than compensate for the higher finance costs as a result of Mapletree Business City 1 (MBC I) acquisition.
DBS’s DPU forecasts for FY17 and FY18 are therefore 3.8% and 1.6% higher than consensus mean estimate.
“Despite our slightly more aggressive DPU estimates, our target price is in line with the market average due to a higher discount factor used as we have assumed higher cost of debt,” adds Song who is maintaining its target price at $1.62.
Meantime, DBS expects more upside potentials from VivoCity and MBC I.
“We have assumed conservative rental reversion at VivoCity in the low single-digits going forward,” says Song, “Any improvement in reversions may lead to share price upside. Moreover, the management has guided for about 40% top line growth as a result of the MBC I acquisition which we have incorporated in our model.”
Better than expected performance from MBC I is another catalyst.
“We have revised our DPU forecasts down by 2-3%. The stock offers dividend yield of over 5.5%, and total potential return of around 9%. Maintain ‘buy’,” says the analyst.
Units of MCT are up 2 cents at $1.60.
