• 1QFY16 DPU rose 8.7% YoY
• Positive rental reversions of 16%-29%
• Buying opportunity

Robust start to FY16 Mapletree

Greater China Commercial Trust (MGCCT) reported its 1QFY16 results which met our expectations. Despite ongoing macroeconomic uncertainties, its gross revenue jumped 19.1% YoY to S$75.9m, and this formed 23.3% of our FY16 forecast. Festival Walk (FW) contributed a 15.7% increase in revenue to S$54.7m, while Gateway Plaza’s (GP) revenue grew 23.6% to S$20.4m.

Sandhill Plaza (SP), which was acquired on 17 Jun 2015, saw its maiden revenue contribution of S$0.8m. With a full quarter contribution from 2QFY16 onwards, we expect better performances ahead for MGCCT. DPU of 1.696 S cents was higher YoY by 8.7%, and this constituted 23.6% of our full-year projection.

Healthy vital signs

Operationally, management achieved positive rental reversions of 16% and 29% at FW’s retail and GP’s office segments, respectively, as at 30 Jun 2015. Overall portfolio occupancy remained stable at 99% (+0.2 ppt QoQ). Footfall and tenant sales at FW registered YoY growth of 5.9% and 6.5% to 9.88m and HK$1.3b, respectively, which we believe strongly outperformed the broader Hong Kong retail market. Another positive sign came from management’s proactive leasing efforts, as 65% of expiring leases in FY16 have already been renewed or re-let.

Maintain BUY

MGCCT’s gearing ratio increased from 36.2% to 41.2%, as at 3 Jun 2015, due to the acquisition of SP. 86% of its interest cost has been hedged for FY16. Management has also hedged ~63% of its forecasted FY16 distributable income for both HKD and CNY. Following MGCCT’s recent share price weakness, we believe its valuations have become more attractive.

The stock is trading at FY16F P/B ratio of 0.83x and offers a prospective distribution yield of 7.3%. The latter is one standard deviation below its historical average since its IPO. We maintain our BUY rating, but due to a slightly higher unit base assumption, our fair value is lowered marginally from S$1.11 to S$1.10.

Source: OCBC Research - 3 Aug 2015