Wednesday, October 08, 2014

Mapletree Greater China Commercial Trust

MGCCT has performed well financially for its first full fiscal period after its IPO, with FY14 revenue and DPU exceeding its projections. We see continued organic growth from MGCCT’s resilient portfolio, underpinned by further positive rental reversions. We value MGCCT using the dividend discount model (DDM) as it is expected to pay out stable rental income (net of expenses) generated from its assets at regular intervals. We derive a fair value estimate of S$1.00 for MGCCT after inputting our financial forecasts and CAPM assumptions (cost of equity: 8.2 per cent; terminal growth rate: 2.0 per cent) in our model. Coupled with an attractive FY15F distribution yield of 7.0 per cent, this translates into total potential returns of 18.1 per cent. MGCCT is also trading at an undemanding FY15F P/B of 0.87x, which we believe is undervalued given its high quality and resilient portfolio. With a cheaper P/B ratio and a higher prospective distribution yield than its S-REITs peers, we initiate coverage on MGCCT with a BUY rating.

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