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Mapletree Greater China Commercial Trust to catch the rising sun in Japan

Samantha Chiew
Samantha Chiew1/29/2018 11:53 AM GMT+08  • 3 min read
Mapletree Greater China Commercial Trust to catch the rising sun in Japan
SINGAPORE (Jan 29): DBS is maintaining its “buy” recommendation on Mapletree Greater China Commercial Trust (MGCCT) and raising its target price to $1.40, from $1.30 previously.
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SINGAPORE (Jan 29): DBS is maintaining its “buy” recommendation on Mapletree Greater China Commercial Trust (MGCCT) and raising its target price to $1.40, from $1.30 previously.

This came on the back of the trust announcing its 3Q17/18 DPU of 1.868 cents, 5.1% higher than 1.778 cents in the same period last year, which brought 9M17/18 DPU to 5.582 cents.

Gross revenue came in 0.78% higher y-o-y at $88.5 million, mainly due to revenue growth from the all three of the trust’s properties due to higher rent, and lower accrued revenue for Gateway Plaza due to the uncertainty in the applicable VAT rate prior to obtaining clarification in March 2017.

Net property income (NPI) for the quarter came in at $71.4 million, unchanged from the previous year.

See: Mapletree Greater China Commercial Trust posts 5.1% increase in 3Q DPU to 1.868 cents

The trust’s results were in line with DBS’ expectations.

In a Monday report, lead analyst Mervin Song says, “Consensus’ target price of $1.27 implies a ‘hold’ call for MGCCT which we believe is unwarranted.”

Although some of the trust’s Hong Kong (HK) listed peers have a lower gearing, the analyst believes that it should rerate closer to the low-mid 5% forward yield of its peers, from its current 5.8% yield, given its strong record.

MGCCT has also recorded the fourth-best total cumulative return for a Singapore REIT since its listing, while having a portfolio with well-located assets.

“We believe the share price rally can continue given improving macro conditions in HK and its discount to its HK peers, and plans to expand to Japan,” says Song.

The analyst feels that the trust’s proposed expansion to Japan could kick-start its inorganic strategy which should accelerate growth and justifies a lower trading yield.

Meanwhile, MGCCT’s share price performance in 2016/1H17 was mixed, partially due to weakness in HK retail sales that led to concerns over the ability of Festival Walk to increase rents.

“While MGCCT has since rallied, we believe the continued positive news flow from improving retail sales should be a tailwind to MGCCT’s share price,” says Song.

Similarly, OCBC is maintaining its “buy” call on MGCCT with a target price of $1.39.

Apart from the fact that the REIT’s results came in within the research house’s expectations, its properties have continued to showcase resilience.

The REIT managed to achieve positive rental reversions across all three of its assets – Festival Walk, Gateway Plaza and Sandhill Plaza.

In a Monday report, analyst Andy Wong Teck Ching says, “Unsurprisingly, most of the questions raised during the analyst conference call centred around MGCCT’s recent announcement that it was expanding its investment mandate to Japan.”

The REIT’s management says that it likes the scalability in the market, while commercial assets in Japan are mostly freehold, have long WALEs and strong tenant credit profiles. The economic environment is also improving and interest rates remain low.

“Taking into account MGCCT’s prospective entry into the Japanese commercial market which we believe would lower its risk profile and diversify its income streams, coupled with more concrete signs of a recovery in consumer sentiment in Hong Kong, we lower our cost of equity assumption from 7.8% to 7.3%,” says Wong.

As at 11.50, units in MGCCT are trading at $1.28, or 22.4 times FY18 earnings with a distribution yield of 5.8%.

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