SINGAPORE (May 3): DBS Group Research is reiterating its “buy” call on Mapletree North Asia Commercial Trust (MNACT) with a higher target price of $1.60 from $1.45 previously.
The research house likes MNACT for its resilient and steady DPU profile combined with quality Grade A assets in Hong Kong, China and Japan. MNACT also remains to be the research house’s key picks and has been one of its best-performing S-REITs year to date.
In its latest 4Q19/FY19 results announcement, MNACT recorded 4Q DPU of 1.956 cents, 2.7% higher y-o-y and FY19 DPU of 7.69 cents, 2.8% higher y-o-y.
This was on the back of a 16.2% y-o-y increase in 4Q19 revenue to $104.0 million, while net property income for the quarter increased by 15.3% to $84.0 million.
In a Tuesday report, lead analyst Mervin Song says, “However, in our view the rally can continue due to the attractive 5.9% yield with steady 2% DPU growth per annum underpinned by consistent positive rental reversions and quality properties.”
Meanwhile, the analyst notes that consensus has a “hold” call with an average target price of $1.36 on MNACT, along with a yield that is significantly higher than its HK peers and below the trust’s NAV of $1.44.
“While some of MNACT’s HK-listed peers have a lower gearing, we believe MNACT should re-rate closer to the around 5% blended forward yield that its HK retail peers are trading at, from its current 5.9% yield given its strong record of DPU performance and having a portfolio of well-located assets,” says Song.
Moreover, the analyst believes that the trust’s consistent delivery of NAV upside warrants a premium to book similar to its other Mapletree sister REITs.
In Hong Kong, the retail market has experienced some moderation lately, but Song believes the tailwinds from the upturn over the past 18 months via increases in rents/positive rental reversions should continue to flow through and act as a tailwind to MNACT’s share price.
“Having hit a record share price and annual DPU in FY19, we believe FY20 will be another year where records are broken again,” says Song.
As at 2.50pm, units in MNACT are trading at $1.37 or 21.8 times FY20 earnings with a distribution yield of 5.9%.
