Thursday, January 10, 2019

Current Market Idea- Mapletree NAC Trust

There has been a recent market rebound and this is rather evident from the 52-week low table we have here (prices are as of Thursday 10 January 2019 closing prices)

All the highlighted stocks from my previous post have rebounded and none are near their 52-week low as of now (the nearest being Singtel which is 6.91% away from its low). My buy call on SATS at 4.5 has to wait unfortunately, but nevertheless it never does harm to do more market analysis on stocks of interest. My previous stock of interest Parkwaylife Reit also rebounded to 2.71, well I suppose in a bullish market, it is tough to buy stuff so I'll have to wait and see!

One stock which I am currently interested in Mapletree NAC which is currently trading at 1.18 at this point of writing. My analysis might not be really accurate as I am using the 26 October 2018 financial presentation which is fairly outdated information.

So a quick look will tell us that the reit has been increasing the money rolling in, with gross revenue and NPI increasing by 12%, which is pretty good. Distribution income and DPU has also been increasing, which should be our utmost concern as unit holders.

Source: MNACT 2Q 2018 Results Presentation

We also note that debt which has fixed interest rates stands at 78%, annual effective interest rate for its debt stands at 2.48% and 80% of distribution income hedged against the Singapore Dollar. Let's look at these three points: for the first, the Federal Reserve is projected to have 2 rate hikes this year (this might change if Trump does pressure it politically) so our risk here is the 22% of debt which might incur higher interest costs. Secondly, the annual interest rate is 2.48% which is pretty ok and I am using the 10 year treasury yield of 2.725% as my basis for comparison. Lastly, we note that the currencies that we are concerned about is the Hong Kong Dollar, Renminbi and the Japanese Yen. Since HKD is pegged against the US Dollar, we can just directly use the USD for our analysis. My take is this: if the rate hikes do happen, more investors will be inclined to buy USD for its higher yield, which will cause an appreciation, which means the USD aka HKD will appreciate against the SGD. This might be already on the way to being true, where the USD rebounded from its 1.30-1.31 lows to its current price of 1.35-1.36 following the rate hikes. Renminbi might continue to depreciate where China faces the pressure of its mounting US debt and dwindling financial reserves. I particularly like this article which clearly depicts the risk it is facing, and if that holds true, the Renminbi should continue to depreciate in value. The Japanese Yen might continue to appreciate as it is a safe haven currency which investors will want to hold in volatile markets. But overall, I believe that currency risks will not have an adverse effect on the reit's earnings.

NAV of the reit stands at 1.325 as opposed to the market price of 1.18, where we are paying 89% of its NAV for a unit. This does signify some sort of undervaluation as opposed to the other S-reits which are trading above their NAV. Gearing is at 39% which is below Singapore's regulation of 45% which looks decent. 2018 dividend yield is at 6.45% which is pretty good as it is 4+% over the current SSB which yields 2.2%. Mapletree NAC's low was at 1.07 which I was contemplating to buy but it rebounded rather quickly.

The risks here would be e-commerce which will erode profits especially in China where e-commerce is so prominent. A recession might also cause a drop in household income and people are less inclined to spend and leading to lower profits for the reit. During my Hong Kong trip, I had the chance to visit Festival Walk on a weekday and I noticed that although the traffic for the mall was good (Festival Walk is on Kowloon Tong interchange and there are many universities in the vicinity), the actual number of people buying stuff wasn't that many. Food court and restaurants were very packed though during lunch hour so the shopping mall might just be a place for people to pass through to their destination (although I may be wrong as weekends might save the day!).

Since I am in view of a bearish market, I will not be buying at its current price and I will be looking at a higher margin of safety at a price of 1, where yield is 7.5%. This will be a long term price that I am comfortable with holding, as a recession does not last forever (so do bullish markets).

Any interesting ideas here? Please share!

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