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DBS ups MNACT's TP to $1.30 as unit price looks poised to re-rate

Felicia Tan
Felicia Tan10/12/2021 07:54 PM GMT+08  • 2 min read
DBS ups MNACT's TP to $1.30 as unit price looks poised to re-rate
DBS analysts Derek Tan and Geraldine Wong say the worst could be over for the REIT’s anchor asset, Festival Walk.
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DBS Group Research has kept “buy” on Mapletree North Asia Commercial Trust (MNACT) with a higher target price of $1.30 from $1.20 as the REIT’s unit price looks set to re-rate.

“We believe that operational metrics will continue to improve on the back of continued re-opening in Hong Kong, driving 9% compound average growth rate (CAGR) in distribution per unit (DPU) over the coming two years,” write analysts Derek Tan and Geraldine Wong in an Oct 11 report.

According to Tan and Wong, MNACT’s 7% yield is the highest among its class of large- and mid-cap peers.

See: Analysts lower MNACT’s TP on 'challenging quarter' despite 1Q results being in line with expectations

In addition, the worst could be over for the REIT’s anchor asset, Festival Walk, which contributes some 55% to its overall revenue.

“Festival Walk may be poised for an operational turnaround as Covid-19 cases in Hong Kong dive down and the continued re-opening of Hong Kong retail scene. In addition, its strategic pivot to office properties in Japan and Korea offering long weighted average lease expiries (WALEs), anchors the stability of its overall portfolio going forward,” write the analysts.

Following the recent inclusion of several Singapore REITs (S-REITs) in the EPRA Nareit Developed Asia Index, Tan and Wong believe MNACT is next.

The REIT’s recent acquisitions from Japan and Korea have caused the analysts to estimate that MNACT will derive over 75% of its profit before interest and tax (PBIT) from developed markets.

That may set the possibility of its inclusion in the index, “which should help to further improve liquidity in the medium term”.

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In their report, Tan and Wong see that they are more buoyant on the counter compared to that of the consensus, who “tend to ascribe too high a risk on the stock given its exposure to Festival Walk”.

“Acquisitions would enable MNACT to reduce its reliance on this property and accelerate its growth momentum,” they add.

Key risks, however, would include the event of a significant downturn in Hong Kong and China’s economies, leading to lower rents.

Units in MNACT closed 1 cent higher or 1.04% up at 97 cents on Oct 12, or an FY2022 P/NAV of 0.8 times and distribution yield of 7.2%.

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