SINGAPORE (Apr 27): OCBC and CIMB are reiterating their “buy” and “add” recommendations on Mapletree Greater China Commercial Trust (MGCCT) with a fair value and target price of $1.42 and $1.30, respectively.
This comes after MGCCT’s manager on Wednesday declared an available DPU for FY18 for 7.481 cents, up 1.9% from a year ago after factoring a 4Q18 DPU of 1.904 cents, which is down 2.8% from the previous year due to a reversal in VAT payable.
In a Friday report, OCBC lead analyst Andy Wong highlights improved occupancy and firm rental reversions for the trust’s properties over the latest quarter, with robust improvements in Festival Walk’s tenant sales and footfall for FY18.
“Management sounded more upbeat about the prospects of its rental reversions at Festival Walk, and seemed confident of achieving low double-digit rental uplifts in FY19,” notes Wong.
The analyst has raised his FY19F DPU forecast by 2.5% to factor in MGCCT’s acquisition of a portfolio of six freehold commercial properties in Japan – which was recently approved by unitholders at an EGM – resulting in a fair value increase to $1.42 from $1.39 previously.
See: MGCCT acquiring six properties in Japan for $753 mil; to be renamed Mapletree North Asia Commercial Trust
In particular, CIMB lead analyst Lock Mun Yee believes the addition of the Japan assets to its portfolio will allow MGCCT to offer both stability and growth with a longer lease expiry profile and positive rental reversion prospects.
Highlighting that MGCCT’s gearing is anticipated to rise to just under 39% post the acquisition, she estimates this would give the trust potential debt headroom of about $400 million to tap inorganic growth opportunities ahead.
“MGCCT has hedged 73% of its 1HFY19 DPU and intends to distribute income on a quarterly basis from 1QFY3/19. Downside risks include a weaker-than-expected China market,” notes Lock.
Like OCBC’s Wong, Lock is also positive on Festival Walk’s strong performance over the latest quarter, and underscores the trend of modest growth in the trust’s China portfolio.
While she expects rental growth from Gateway Plaza in the China portfolio to be modest, the analyst anticipates positive rental reversions from Sandhill Plaza, which saw a 15% rise in renewal rents over the full year, with occupancy ticking back up to 100% at end-FY18.
“[Festival Walk] has 19.3% and 17% of income to be re-contracted in FY19 and FY20. The sustained strong trading performance of the mall augurs well for future rental reversions,” she adds.
As at 11.33am, units in MGCCT are trading flat at $1.15 or 0.8 times and 0.82 times OCBC and CIMB’s FY19 forward estimates, respectively.
