DBS Group Research is re-instating its coverage on Mapletree Pan Asia Commercial Trust (MPACT) with a “buy” call and a target price of $2.30.
The target price, which is lower than the brokerage’s last target price estimate of $2.45, represents an upside of 19% from MPACT’s unit price of $1.93 as at the close of Sept 13.
The revised target price is based on a risk-free rate of 3% and beta of 0.8. It also implies a price to net asset value (P/NAV) of 1.15x, which is close to 1 standard deviations (s.d.) above MPACT’s historical mean (on NAV at its pre-Covid) levels, explain analysts Rachel Tan and Derek Tan. The analysts’ new target price also implies a dividend yield of 5%.
To the analysts, MPACT represents an “opportunity [that’s] not to be missed” as they see it benefitting from the further recovery when Hong Kong and China reopen from their Covid-19 lockdowns.
To them, MPACT’s retail assets, VivoCity in Singapore and Festival Walk in Hong Kong could benefit from the further reopening. VivoCity and Festival Walk both contribute a total of 40% of MPACT’s FY2022 net property income (NPI).
“We estimate two-year distribution per unit (DPU) compound annual growth rate (CAGR) growth could be 7%, should VivoCity and Festival Walk recover to pre-Covid-19 levels,” the analysts write.
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In addition, MPACT, with the divestment of its non-core assets in Japan and China, could reposition again to focus on its best-in-class assets in Singapore. The REIT could then raise its NPI contributions from its Singapore assets to at least 70% from its current 62% of FY2022 NPI, the analysts note.
At its current share price levels, the REIT is trading at a yield of over 5%, which offers an “attractive yield spread” as the third-largest Singapore REIT (S-REIT).
“Based on NAV at pre-Covid levels, MPACT trades at below 1x P/NAV and offers good potential upside with recovery post-Covid,” the analysts write.
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As such, they believe now is an “opportune time” to ride on the potential upside of MPACT’s portfolio optimization and recovery post the merger when valuation is still attractive.
However, investors should look out for key risks such as the slower-than-expected reopening in Hong Kong and China or a slowdown in economic growth or potential recession, which may impact retail recovery.
Units in MPACT closed two cents lower or 1.04% down at $1.91 on Sept 14.
