Mapletree Greater China Commercial Trust,
STI : 3,075.99
Price Target : 12-Month S$ 0.97
Beat prospectus forecasts
•3QFY14 profit ahead on strong rental growth
•Focus on organic growth; minimising forex impact by hedging income
•Upgrade to BUY with S$0.97 TP
Beat prospectus forecast. MAGIC booked S$65.7m revenue in Q3, 10% better than forecast, while NPI was ahead by 13% at S$53.8m and distribution income by 17% at S$40.6m. 9M FY14 profit is 78% of our full year estimate. The better-than-projected results were driven by higher operating income, cost savings, and lower interest expense. Distribution income translated into 1.52Scts DPU or 7.5% annualised yield.
Strong organic growth. Income growth was driven by higher contributions from Festival Walk and Gateway Plaza in Beijing. Festival Walk enjoyed positive rental reversion of 20-22% with tenant sales growing 5.6% in 9M FY14 and 6.6% higher shopper footfall. There was slight frictional vacancy at Gateway Plaza but the property remained popular with 97% occupancy in Jan 2014. It benefited from 78% rental uplift from expiring leases in Q3. More importantly, rents are being renewed at RMB320-360psm/mth in this micromarket despite weakness in the Beijing office market.
Hedged income to reduce forex impact. About 7% of leases at Festival Walk and 1% in Gateway Plaza are due to be recontracted in FY14, and another 19% and 9% in FY15. Given prospect of positive economic growth in HK as well as limited supply and continued appetite for office space in its micromarket in Beijing, the trust will continue to enjoy robust income growth. In addition, 71% of its interest cost is fixed until end FY16, minimising the potential impact of rising financing costs. In terms of capital management, its balance sheet remains healthy with gearing at 41%. The Manager has also hedged 100% of FY14 and 90% of FY15 HKD income and is progressively converting RMB distributable income to SGD to reduce the impact of forex volatility.
Upgrade to BUY. Following the recent price weakness, we upgrade MAGIC to BUY with a TP of S$0.97. At the current price, MAGIC offers FY15 DPU yield of 7.5% and 27-28% total return.
Publish date: 27/04/14