Analysts from Maybank Securities and CGS-CIMB have gone the opposite way in their call on Mapletree Pan Asia Commercial Trust.
Following the REIT's 4QFY2023 earnings, CGS-CIMB has downgraded the stock from "add" to "hold", while Maybank has upgraded its call from "hold" to "buy" - but they've both arrived at the same target price: $1.90.
In their May 1 note, CGS-CIMB analysts Natalie Ong and Lock Mun Yee say that MPACT’s core assets, namely, VivoCity and Mapletree Business City in Singapore, are “pulling their weight”, with revenue growth of 19.8% and 4.4% y-o-y respectively for FY2023.
Full year revenue growth for the whole of MPACT was up 65% over the preceding FY2022, following the merger with Mapletree Commercial Trust to form the enlarged entity in July 2022. Net property income in the same period was up 63% y-o-y.
However, because of its properties in China, the portfolio suffered from a lower occupancy of 95.4% as at March versus 97.2% from the year earlier.
While cap rates were unchanged in FY23, portfolio valuation dipped 2.3% y-o-y as valuation gains in the Singapore portfolio, up 0.7% y-o-y, was offset by lower valuation of its overseas portfolio, down 5.6% y-o-y.
The drop was caused by unfavourable forex movement which accounted for one-third of the valuation loss for its overseas properties, note Ong and Lock.
Gearing, meanwhile, inched up q-o-q from 40.1% to 40.9% as at Mar 23 due to lower asset value post-revaluation exercise, although management has ruled out pre-emptive equity fund-raising lower gearing.
“While it considers divestment as a possible option to lower gearing, valuation weakness, particularly in the North Asia markets, is a deterrent to this strategy,” note the analysts.
Their revised call of “hold”, from “add”, is because of lower distribution per unit forecasts of 8.9% and 6.2% for the current FY2024 and FY2025 respectively, as they bake in higher interest cost and unfavourable forex expectations. From the previous target price of $2.08, they now see the stock worth $1.90.
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On the other hand, Krishna Guha of Maybank Securities has upgraded the stock from “hold” to “buy”, as he believes that the known negative news on MPACT had already been taken into account by the market. These include Google renewing its lease at Mapletree Business City in phases, and the multi-year woes suffered by the Festival Walk mall in Hong Kong.
“These are known and we believe are priced in,” writes Guha in his May 3 note.
While he has lowered his DPU estimates for the current FY2024 and coming FY2025 by 3.4% and 1.2% respectively, he has upgraded the stock to “buy”, given his previous target price of $1.65, versus the current estimate of $1.90.
“Catalysts may emerge from stabilization of rates and asset recycling. MPACT trades at book and yields 5.5%, which we believe compensates for some of the risks,” he adds.
