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CGS-CIMB reiterates 'add' for Mapletree North Asia Commercial Trust towards a more stable 2H

Khairani Afifi Noordin
Khairani Afifi Noordin11/1/2021 04:01 PM GMT+08  • 3 min read
CGS-CIMB reiterates 'add' for Mapletree North Asia Commercial Trust towards a more stable 2H
Much of the weak retail outlook at Festival Walk has been factored into the current share price, the analysts say.
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CGS-CIMB Research analysts Lock Mun Yee and Eing Kar Mei have maintained their ‘add’ rating for Mapletree North Asia Commercial Trust (MNACT), with an unchanged target price of $1.12.

Lock and Eing have also kept their distribution per unit (DPU) estimates for the FY2022 and FY2024 unchanged.

In an Oct 29 note, the analysts say MNACT is trading at an inexpensive 6.8% FY2022 DPU yield and much of the weak retail outlook at Festival Walk has been factored into the current share price.

In the 1HFY2022, MNACT reported gross revenue and net property income (NPI) of $215.4 million and $161.9 million respectively, 13.1% and 15.8% higher y-o-y. This is due to lower rental relief of $4.7 million granted to retail tenants at Festival Walk, contributions from Hewlett-Packard Japan headquarters as well as a stronger Renminbi.

See: Mapletree North Asia Commercial Trust's DPU up 19.1%

The figures were partly offset by lower average rental rates at Festival Walk and Gateway Plaza as well as a weaker Hong Kong dollar. This led to a higher NPI margin of 75.1% for 1HFY3/22, the analysts highlight.

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Distributable income grew 19.1% y-o-y at $119.5 million, translating to a DPU of 3.426 cents. Portfolio occupancy ticked up slightly q-o-q to 97.9%.

In terms of balance sheet, MNACT’s gearing stood at 41.4% at end-1HFY22, with interest cover of 4.1 times, while effective interest cost declined h-o-h to 1.84%.

Gross revenue at Festival Walk grew 21.4% y-o-y to $106.6 million, while NPI grew a higher 26.1% y-o-y, boosted by lower rent reliefs. Retail sales and shopper traffic at Festival Walk expanded 22% and 29% respectively y-o-y, in tandem with overall improvements in Hong Kong’s retail sales.

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While occupancy remained fairly stable at 99.9%, leasing conditions were soft as retailers remained cautious on outlook, say Lock and Eing. MNACT reported a 30% decline in rental reversion in 1H.

The company has a remaining 5% of portfolio gross rental income coming from Festival Walk’s lease expiries for 2HFY3/22F. MNACT expects the quantum of negative reversions for 2HFY22F to remain similar to that of 1H.

The analysts add that interior recovery works at Festival Walk have been completed and exterior works are being carried out progressively and are expected to complete by end-2021.

Meanwhile, Gateway Plaza saw higher occupancy of 95.4% but recorded a negative reversion of 24%. Looking ahead, with ample incoming supply, the analysts think the weak outlook is likely to continue to drag on upcoming lease renewals.

“MNACT also indicated that one of the major tenants at Gateway Plaza, whose current lease is due to expire by Dec 2022, has extended its lease in advance by another year. Meanwhile, Sandhill Plaza and the Japan portfolio continue to be steady performers, delivering a 5% and 1% rental reversion and stable occupancy of 99.7% and 87.8% respectively.

“The Pinnacle Gangnam reported a 58% rental reversion on renewal of one lease and management guided that rental reversions are likely to remain healthy. MNACT has another 1.2% of leases in Japan and Seoul to be re-contracted in 2HFY22F,” the analysts add.

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CGS-CIMB’s target price for MNACT is $1.12, presenting a 12.3% upside.

As at 4.15 pm, units in MNACT are trading flat at $1.02.

Photo: MNACT

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