Investment Analysis of Mapletree Greater China Commercial Trust [RW0U]

***Please note that this does not constitute a stock recommendation for buy or sell. This is purely my own analysis and is to be taken as my own personal opinion and not to be taken as correct. Kindly do your own diligence in purchasing stocks.

Before I delve further into my investment analysis of Mapletree Greater China Commercial Trust, I’ve got a disclaimer to make, that I have recently initiated a small position in this and my analysis of this stock is the fastest one I’ve done compared to my previous ones. Basically I kind of came up with this just within an afternoon in office and pretty much plunk money into it the next day. I’ve slowed down in investing for the long term since I began to focus more on trading to build a bigger base to do longer term investing as it really takes a long time for investing to pay off and with a small base, the returns are quite minimal.
This is a stock i consider holding long term for dividend yield and slight capital appreciation. In my personal opinion, it is slightly undervalued, and if price drops further, I would accumulate more shares provided I have sufficient funds and the proportion fits into my portfolio.

Mapletree Greater China Commercial Trust is a relatively small REIT. It is listed on the SGX since 2013. Currently it only have 3 real estate properties, they are:

Festival Walk – located at Hong Kong, Kowloon Tong, comprising of a 7-storey retail mall, 4-storey office tower and 3 underground carpark levels

Gateway Plaza – located at China, Beijing, comprising of 2 25-storey office towers connected by 3-storey retail atrium and underground floors

Sandhill Plaza – located at China, Shanghai, a business park development comprising of 1 20-storey tower, 7 blocks of 3-storey buildings and 2 basement levels of car park


I have simplified my share price valuation to the below:

Since inception, it has been distributing >6cents per year, and being conservative, I will assume the dividend to be 6cents, with current share price bought at $1.035,

my return on equity = (0.06/1.035) ~ approx 5.8%

Gearing ratio ~ 40%,

WACC ~ 4.42%

NAV = $1.213

Using dividend model without growth, share price = dividend/rate of return = (0.06/0.058) = $1.035

It would seem that calculation for dividend model is circular, However, the rate of return I expect can be adjusted. If I expect a lower rate of return, the expected share price would be higher and vice versa. For now, I think that it is actually good to have a yield of >5%, and I can accept the circular logic of my calculation.


So why did I buy this?

Value

Not a very convincing reason since this is the only reason I’m buying it. It is a fair value based on Gordon Dividend model and the share price is at an approximate 15% discount to the NAV. I am going to use the NAV as a reference as to when to liquidate the position and will probably need to do more research and analysis to this. Waiting for the Q4 and FY 16/17 earnings release tomorrow.


What are some of my concerns?

Not very diversified

With a vision to be a Greater China-focused commercial REIT and an investment mandate in HK and first and second-tier cities in China, it only has 3 properties. This is something to look out for as I can only guess what is the management’s strategy going forward and trust in their management skills. Also, assuming that they follow through on their 3rd key strategy of value-creating acquisition growth, I am not  very sure about how easy it would be to find yield-accretive properties for it to buy. Management strategy is definitely something to look out for.

High Gearing Ratio

With a gearing ratio at slightly >40%, this is a highly leveraged REIT. Especially since with the above reason it is not very diversified and only has 3 properties, it has to buy more properties to grow, and I do not think management will fund the growth using additional debt. As such, funding channel should theoretically be limited to rights issuance or further equity placement which would depress share price. The flip side is that I can buy on dips assuming that the new properties bought are yield accretive.


Conclusion

In closing, I think it is a fair price for its value and since this is a REIT and similar to my holdings in Religare Health Trust, I plan to hold this share for a long long time. I could have bought this share few months ago when it was significantly cheaper, but this is based on hindsight bias and the 2016 was marked with significant volatility. If the share price starts to drop, I will accumulate more of it and if it rises to $1.20, I will consider liquidating it. I do not doubt the profitability of the REIT as it holds retail and office spaces, and it will generate income for sure. Any thoughts or comments? Let me know what do you think or if I am wrong in any area.

Basic information on Indices

I decided to do a post on the general information on some of the world’s global indices as I have recently completed a futures trading course, and it has piqued my  interest in futures trading, and I might decide to go down this path in the near future. Thus, I think it necessary to start compiling some information on indices as this is a potential type of futures to trade. I will try to include some general information about them, the way they are computed, the composite of them and hopefully any further useful information. I might be wrong, so please don’t take my word for it, and the post is mainly for my own benefit and ease of use.

ASX 200

It is recognized as the benchmark index in Australia, and it covers approximately 80% of Australian equity market capitalization. It is reviewed quarterly. It is weighted by float-adjusted market cap, which means its components are weighted by the market value of the outstanding shares held by public. Index calculation is the quotient of total available market capitalization of the constituents and its divisor. The weight of the top 10 constituents is approximately 48.7%. The ASX 200 is made up of mainly financials ~ 38.8% and materials ~ 15.7%.

Nikkei 225

It tracks the performance of the top rated 225 companies listed in the First Section of the Tokyo Stock Exchange. It is reviewed once yearly by the liquidity in the market and sector balance. It is a price weighted index, which means that price movements of highly priced stock will have significant influence on the index value.

Adjusted stock price = stock price x 50(yen) / presumed par value (yen)

Nikkei Stock Average = sum of Adjusted stock price / Divisor

The index is mainly made up of companies from technology ~ 43.51% and consumer goods ~ 22.56%.

Base on personal experience, the companies in the index are export oriented and the value of the Nikkei 225 is inversely related to the strength of the yen.

HSI

It tracks 50 of the largest and most liquid companies of the Hong Kong stock market. It is weighted by float-adjusted market cap, which means its components are weighted by the market value of the outstanding shares held by public, and also has a 10% on individual securities. It is reviewed quarterly. The index is mainly made up of financials ~ 47.57% and Information technology ~ 11.48%.

DAX

It is a blue chip stock market index tracking 30 of German’s top companies based on book volume and market capitalization. It is free float capitalization weighted, calculated as both price and total return index and has a cap of 10% on individual securities. It is reviewed on a quarterly basis. It is diversified of some sorts, with chemical companies at ~ 20.2%, automobile ~ 14.7% and others ~ 21.9%.

FTSE 100

It is a share index of 100 companies listed on the London stock exchange with the largest capitalization. It is capitalization weighted and reviewed quarterly. It appears to be well diversified with Oil & Gas ~ 11.92%, Personal & Household Goods ~ 11.77%, banks ~ 10.80% and Healthcare ~ 9.52%. It consists mainly of internationally focused companies as seen from its reaction to sterling rates, and is not a good indicator of UK economy.

S&P 500

It measures 500 large companies listed on the NYSE or NASDAQ. It is free float capitalization weighted. It is made up of approximately IT ~ 20.29%, Financials ~ 14.47%, 13.32%, Consumer Discretionary ~ 11.76% and Industrials ~10%.

DJIA

It measures 30 companies listed in USA, and is price- weighted. Its top sectors are industrials ~ 19.69%, financials ~ 18.09%, IT ~ 16.92% and Consumer Discretionary ~ 14.23%.

NASDAQ Composite

It measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq stock exchange. It is market capitalization weighted. It consists of over 3000 companies and is heavily skewed towards Technology firms at 41.52%.

Further links for more information

https://www.msci.com/documents/1296102/1339060/GICSSectorDefinitions.pdf/fd3a7bc2-c733-4308-8b27-9880dd0a766f