DBS Group Research’s (DBS) analysts Derek Tan and Geraldine Wong are maintaining their “buy” call on Mapletree Pan Asia Commercial Trust N2IU (MPACT) and a target price of $1.75. The analysts’ target price implies a P/B of 1.0 times, which is “fair” given the REIT’s dominant assets in Singapore. The unchanged target price also reflects a 24% upside to the REIT’s traded price of $1.41 as at Sept 9.
Tan and Wong note that MPACT is an undervalued quality Singapore-REIT (S-REIT) with yields greater than 6.0%. With a “value” play at 0.8 times price-to-book (P/B), it has a 1% higher yield pick-up in comparison to larger cap S-REITs. Furthermore, Tan and Wong are of the opinion that the price fails to reflect two prominent developments, Vivocity and Mapletree Business City, which represent around 54% of MPACT’s income.
Further to their report, the analysts identify MPACT as a prime beneficiary of interest rate cuts, with a 1% cut driving up to a 2.4% increase in the REIT’s distribution per unit (DPU), which has not been factored in. The analysts believe that concerns over a further write-off in Festival Walks’ value is unwarranted as “sequential improvement in cash flows in 1QFY2025 from Festival Walk implies that better times are ahead, and with the interest rate overhang tapering off, higher operating cash flows are likely to flow down to the bottom line”, they say.
MPACT has undergone portfolio optimisation in view of their next stage of growth, which is another plus in the analysts’ books.
“The recent divestment of Mapletree Anson solidifies the balance sheet position (pro-forma gearing of 38%, interest coverage ratio or ICR improves to [over] 3.0 times) and we believe that further asset divestments could be in the offing to further streamline the portfolio and thus reposition the REIT to recapture growth opportunities from its sponsor or third parties,” write Tan and Wong.
The analysts have identified economic uncertainties or downturns as a possible key risk for MPACT’s retail and office assets.
“The recent share price run in MPACT has legs, in our view, given expectations of lower risk profiles on the back of a more conducive interest rate environment,” say the analysts.
“With its share price still lagging that of larger cap S-REITs, we believe MPACT, trading at a 6% FY2025 yield, is very attractive”, they add.
As at 9.55am, units in MPACT are trading at 1 cent higher or 0.70% up at $1.43.
