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Mapletree Greater China Commercial Trust - DBS Research 2017-01-04: Only a speed hump

Mapletree Greater China Commercial Trust - DBS Vickers 2017-01-04: Only a speed hump MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Only a speed hump


Quality will shine through. 

  • We maintain our BUY call and TP of S$1.11 for Mapletree Greater China Commercial Trust (MAGIC).
  • While MAGIC faces the challenge of a stronger SGD and higher property taxes at Gateway Plaza, we believe these factors are only speed humps in the near term. 
  • As MAGIC cycles through these headwinds over the next few quarters, the strength of core asset Festival Walk (c.70% of net property income (NPI)) as well as the boost from the Sandhill acquisition will shine through. 
  • Moreover, MAGIC offers an attractive yield in excess of 6% which we believe is high considering that its portfolio of quality properties is still delivering healthy (7-23%) rental reversions.


Festival Walk’s defensive positioning. 

  • The strong market positioning of Festival Walk makes it well placed to weather the headwinds in the HK retail market. Located in Kowloon Tong’s mid to upper residential area and next to City University of Hong Kong, it serves the needs of the local community rather than mainland Chinese tourists which have been the main reason for the fall in HK retail sales. 
  • In addition, due to the mall’s strong track record, we understand there remains a queue of potential tenants eager to be located within the mall. Combined with occupancy costs of c.19% which is in the middle of the 16-22% range for other malls in HK, this bodes well for rents going forward. This is evidenced by rental reversions of 15% in 1H17.


Full contribution from Sandhill Plaza yet to be realised. 

  • With the S$412m acquisition of Sandhill Plaza in Shanghai only completed in June 2015, MAGIC’s earnings should receive a boost over the coming year, which should help mitigate any potential slowdown in HK, negative drag from higher property taxes in Beijing, and a strengthening SGD.


Valuation

  • We maintain our DCF-based TP of S$1.11 which has incorporated lower occupancy and higher taxes at Gateway Plaza partially offset by higher occupancies at Sandhill Plaza.


Key Risks to Our View

  • The key risk to our view is a significant downturn in the HK and Chinese economies, causing a decline in rents at Festival Walk, Gateway Plaza and Sandhill Plaza.




Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-01-04
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.130 Same 1.130





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