Mapletree Greater China Commercial Trust - Hold: Solid growth continues

■ 1HFY16 DPU up 11% y-o-y, implying a 7.1% dividend yield

■ DPU growth well-supported by resilient rental performance at Festival Walk and a growing China asset portfolio

We have a Hold rating and fair value target price of SGD1.15 (from SGD1.14)

1HFY16 DPU up 11% y-o-y
MGCCT (Mapletree Greater China Commercial Trust) reported 2QFY16 results after market close on 27 October and will host a results briefing on 28 October. 1HFY16 DPU came in at SGD0.03499, up 11% y-o-y (vs +8.7% y-o-y in 1QFY16) and representing 49% of consensus FY16e DPU estimate. 1HFY16 DPU implies FY16e dividend yield of 7.1% if annualized (based on last closing price). We expect a stronger 2HFY16 thanks to contributions from Sandhill Plaza in Shanghai acquired in June 2015. MGCCT reported gearing of 41% as of September 2015 (marginally down 0.2 pp q-o-q) and book value of SGD1.192 (+4.1% q-o-q), implying 0.83x PB.

Steady rental growth from Hong Kong
Festival Walk (FW) continues to deliver solid performance thanks to its mid-end positioning and strong local catchment area, as evident by

1) +1.8% y-o-y in retail sales in 1HFY16 (albeit slowing from +6.5% y-o-y in 1QFY16);

2) rental uplift of 20% achieved (improved from 16% in 1QFY16) and high occupancy (100% as of September 2015, flat q-o-q), which contributed to 18.4% y-o-y revenue growth at FW in 1HFY16 (vs +15.7% in 1QFY16).

Growing portfolio in China
In China, rental revenue reflected the maiden full-period contributions in 2QFY16 from Sandhill Plaza, which recorded occupancy of 100% as of September 2015 (+1.5pp q-o-q) and accounted for 3.6% of gross revenue in 1HFY16. Meanwhile, Gateway Plaza in Beijing continued to achieve high occupancy of 96.3% as of September 2015 (-2.3pp q-o-q) and rental uplifts of 25% in 1HFY16 (vs. 29% in 1QFY16).

Technical Analysis
Daily Chart
We have a Hold rating and new fair value target price of SGD1.15
We revised up our FY16-18e DPU by 6-11% reflecting new acquisition and higher NPI margins. Our FY16e DPU is largely in-line with Bloomberg consensus. Our TP is tweaked up 1% to SGD1.15, based on a 50:50 weighting of our DDM (+1% assuming a discount rate of 7.6% vs 7.0% previously) and NAV-based (+2%) valuations. We expect MGCCT’s portfolio to deliver resilient rental performance, albeit with potentially slowing DPU growth, while, like for other REITs, trends in long-term bond yields in HK/US may result in volatility in MGCCT’s share price trends. (Read Report)

Read Related Reports
1) Mapletree Greater China Commercial Trust - Robust showing by CIMB Research, published on 28 October 2015

2) Mapletree Greater China Commercial Trust - Consistent Performer by DBS Group Research, published on 28 October 2015

3) Mapletree Greater China Commercial Trust - Robust double-digit growth‏ by OCBC Investment Research, published on 28 October 2015

4) Mapletree GCCT - Acquisition remains on agenda‏ by Macquarie Research, published on 28 October 2015

5) Mapletree GCCT - Beat by solid operating statistics‏ by Macquarie Research, published on 27 October 2015

Source : HSBC Global Research

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