MCT's 1Q20 in Line, But Note Placement Risk; Prefer FCT

• Our forecasts are unchanged following MAPLETREE COMMERCIAL TRUST (SGX:N2IU)'s in-line 1Q20 results with our/consensus estimates; DPU rose 3.6% y-o-y, meeting 25% of our FY20E.
• The quarter saw improved performance at VivoCity, despite transitory downtime, with growth to pick up in coming quarters. We can’t rule out an equity fund raising given the strong share price run, particularly with the market starting to price in an impending MBC II deal.
• We raised our DDM-based Target Price 17% to SGD2.10 (COE: 6.3%, 2.0%) based on a lower risk-free rate assumption of 2.5%. Reiterate HOLD with the shares fairly valued and stretched vs. historical avg. and peers; an estimated 10% DPU upside assuming a 50-50 debt-equity funded MBC II deal may offer further valuation support.
• We prefer Frasers Centrepoint Trust (SGX:J69U) (BUY, Target Price SGD2.80, see report: Frasers Centrepoint Trust - Rerating On Retail) for its higher yields and stronger DPU growth profile.

Mixed Bag – Retail Performed Better

• Mapletree Commercial Trust's 1Q20 revenue and NPI fell from 98.1% to +10.3% earlier.

Catalyst From VivoCity Further Out

• VivoCity’s revenue and NPI NTUC’s 91k sf, together with speciality businesses (mostly FnB tenancies) for the remaining 24k sf, and Uniqlo’s 1.8x expansion from Sep 2019, should continue to secure the asset’s relevance as a destination mall, with rising shopper traffic to support leasing demand.
• We see near-term rental for longer-term investors.

Source: Maybank Kim Eng Research - 26 Jul 2019