MGCT – DBSV

A good showing

• Maiden numbers ahead of forecast by 8%
  
• Boosted by strong reversions at Festival Walk and Gateway Plaza
  
• Maintain Buy, TP revised to S$1.09
  

Highlights

Sterling set of maiden results. MAGIC reported its maiden set of results for the period 7 Mar – 30 June 2013. Income available for distribution for the period of S$46.1m was 8.3% higher than IPO prospectus forecast, translating to a DPU of 1.734Scts (vs forecast of 1.6Scts). This was achieved on revenue of S$73.8m (+3.4% ahead of forecast) while NPI came in at S$59.7m (+7.4% over forecast) on efficient cost management.

Robust leasing activities. Portfolio occupancy remained high at 98.3% (Festival Walk 99.1%, Gateway Plaza 97.8%). About 84% of expiring retail leases at Festival Walk this year were renewed at rates 21% higher than preceding levels, aided by higher tenant sales of 7.8% y-o-y with shopper traffic rising 1.5% y-o-y, while 90% of office leases due were renewed at 25% higher rates than previously. For Gateway Plaza, 43% of leases expiring this financial year have been renewed at rents 86% higher than previously, with a retention rate of >92% as it continued to enjoy expansion demand from tenants’ consolidation activities.

Our View

Benefiting from organic rental growth and AEIs. Looking ahead, we expect 2H to be better than 1H. There is a remaining 25% of leases at Festival Walk to be re-contracted in FY14 and another 5% at Gateway Plaza with an additional 18% and 10% of leases at both properties respectively due in FY15. We believe that Festival Walk will continue to deliver robust results, aided by steadily growing retail sales in HK. Planned AEIs including conversion of the office into semi-commercial space at Festival Walk will also likely contribute from end of 3QCY13 while ongoing tenant remixing should bear positive fruits in the medium term. Despite the overall

weaker Beijing office leasing market, Gateway Plaza continued to enjoy good demand in its micro-market with transacted rents still within the Rmb320-360psm/mth range. Demand drivers are expected to come from existing tenants’ expansion demand rather than new demand.

Healthy balance sheet. In terms of capital management, gearing is at 41.5% with two thirds of its debt swapped into fixed rate with all-in interest cost maintained at 2%. 100% and 90% of its HK$ distributable income for Year 1 and 2 have also been hedged respectively. This provides unitholders with certainty of distributions.

Recommendation

BUY, S$1.09 TP. We continue to like MAGIC for its earnings resilience backed by robust performance at Festival Walk as well as the growth aspects from organic positive rental reversions. With the adjustment of the latest risk free rates, we have revised our TP to S$1.09. The stock offers 5.8-6.4% FY14-15 DPU yields and a potential total return of 20-21%. Maintain Buy.