Mapletree Greater China Commercial Trust - Hold: A solid start to FY16e


■ 1QFY16 DPU up 8.7% y-o-y, implying a 6.9% dividend yield (annualised)

■ Robust retail sales growth at Festival Walk and new rental contributions from Sandhill Plaza to contribute to steady DPU growth

■ We have a Hold rating and a fair value target price of SGD1.14

Solid DPU growth of 8.7% y-o-y in 1QFY16:
MGCCT (Mapletree Greater China Commercial Trust) reported 1QFY16 results after market close on 31 July and will host a results conference call on 3 August. 1QFY16 DPU came in at SGD0.01696, up 8.7% y-oy, representing 24-25% of our FY16e DPU estimate and FY16e DPU consensus. If annualised, we estimate full-year DPU of SGD0.06803, implying a FY16e dividend yield of 6.9% (based on the last closing price), although we expect more DPU contributions in subsequent quarters, helped by the contributions from Sandhill Plaza in Shanghai, of which the acquisition was completed on 17 June 2015.

Robust retail sales at Festival Walk: 
Despite sluggish overall retail sales in HK, the Festival Walk (FW) mall reported 6.5% y-o-y growth in retail sales in 1QFY16 (vs. +5.8% y-o-y in FY15) and a robust rental uplift of 16% achieved in 1QFY16, albeit a slight slowdown from 22% in FY15. At Gateway Plaza (GP) in Beijing, an office rental uplift of 29% was achieved in 1QFY16, largely steady from 30% in FY15. MGCCT’s three properties enjoyed a high occupancy rate as of 1QFY16, i.e., 100% at FW and 98.6% at GP (both largely steady q-o-q), and 98.5% at Sandhill Plaza (up 2.3pp q-o-q). MGCCT has made good progress on leasing with 65% of expiring leases (by lettable area) in FY16 renewed/re-let as of 1QFY16.

Higher gearing after the acquisition: 
MGCCT reported gearing of 41.2% as of June 2015 (up from 36.2% as of March 2015 and 38.6% as of June 2014), mainly reflecting additional borrowings related to the Sandhill Plaza acquisition in June 2015, although the portion of debt with fixed interest costs for FY15-16 remains high at 86% (vs. 87% as of 4QFY15). MGCCT reported a book NAV of SGD1.145 as of June 2015, down 4% q-o-q, partly reflecting a translation loss arising from investment properties.


Technical Analysis
Daily Chart
We have a Hold rating and a fair value target price of SGD1.14. Our TP (unchanged) is based on a 50:50 weighting of our DDM (assuming a discount rate of 7%) and NAVbased (assuming cap rates of 5-8%) valuations. We expect MGCCT’s portfolio to deliver resilient rental performance, while, like for other REITs, trends in long-term bond yields in HK and the US, may result in volatility in the share price performance. Other key risks include potential value-accretive acquisitions (positive) and/or subdued Hong Kong retail sales, which will likely negatively affect Festival Walk’s performance. (Read Report)

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Source : HSBC Global Research

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