CFA Society Singapore
SINGAPORE (Oct 29): DBS Vickers Securities and Maybank Kim Eng are maintaining their respective “buy” and “hold” calls on Mapletree Commercial Trust (MCT) with target prices of $1.80 and $1.60, post the latest release of MCT’s results for 2Q19.
In a report on Monday, DBS analyst Mervin Song says he sees the consensus target price of $1.66, which implies a price-to-book (P/.B) value of 1.1 times, as “too low” considering VivoCity is only valued at a cap rate of 4.75% – higher than recent transactions at 2.6-4.2% for arguably less dominant malls.
DBS’s target price of $1.80 implies a P/B of 1.2 times.
In Song’s view, MCT’s management capabilities to undertake AEIs to partially future-proof VivoCity against competition from other malls and the online space will underpin the trust’s 2% DPU CAGR over the coming two years.
“While investors may be distracted by the rise in interest rates in the near term, we believe improving Singapore office rents and retail sentiment or sales should allay fears that MCT does not have levers to counter the impact of higher interest rates. As investors acknowledge this fact, MCT’s share price should outperform,” says the analyst.
On the other hand, Maybank has raised DPU estimates by 2% after lifting rental assumptions for VivoCity, where VivoMart will vacate 115,000 sq ft of space by 1QCY19 for the space to be replaced by Fairprice.
Maybank analyst Chua Su Tye says he is expecting high-single-digit reversions going forward, with destination malls like VivoCity continuing to draw shopper traffic, supported by strong tourism growth.
In his opinion, narrowing office cap rates imply a $125 million revaluation gain from Mapletree Anson, while a potential MBC II acquisition could boost also boost the trust’s DPU by 9-10%.
“CCT also divested Twenty Anson in July at a 2.7% NPI yield, for $516 million or $2,503 psf. We believe a potential divestment of Mapletree Anson at similar capital values could result in a $125 million gain, while a closely-timed divestment of this lower-yielding asset could increase debt headroom for further DPU accretion,” notes Chua.
Units in MCT were down by 1 cent at $1.63 prior to the midday trading break.