Mapletree Logistics Trust (MLT SP) - UOB Kay Hian 2016-09-29: Emerging Presence In Vietnam

Mapletree Logistics Trust (MLT SP) - UOB Kay Hian 2016-09-29: Emerging Presence In Vietnam MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust (MLT SP) - Emerging Presence In Vietnam

  • We have retooled our model to factor in MLT’s latest acquisition in Vietnam, in line with management's diversification strategy. 
  • While we have factored in DPU accretion from the transaction, we raise our required return rate marginally to reflect a slightly heightened risk profile, leaving our target price of S$1.28 unchanged. 
  • Maintain BUY.



WHAT'S NEW

  • We have adjusted our earnings model to factor in Mapletree Logistics Trust’s (MLT) recent acquisition of a Vietnam warehouse for VND$339.2b (about S$20.6m) from sponsor Mapletree Investments.


STOCK IMPACT


Acquisition in line with management's strategy of building a diversified portfolio

  • Acquisition in line with management's strategy of building a diversified portfolio of properties by venturing beyond the domestic shore. We are not surprised by this acquisition, given that management had flagged Vietnam as a target market (along with Sydney) and that this is a pipeline asset from its sponsor Mapletree Investments.
  • Singapore now accounts for 38.8% of the portfolio, followed by Japan (18.5%) and Hong Kong (14.4%).

Sufficient debt headroom to fuel inorganic growth. 

  • With aggregate leverage at 37.4% post acquisition, we estimate debt headroom at S$230m to support further acquisition-led growth, assuming a comfortable gearing level of 40%. 
  • We opine that near-term acquisitions, especially in target market Sydney, will likely be driven by third-party transactions as most of the pipeline assets could likely take 1-2 years to stabilise before they could be injected.

Expected yield accretion. 

  • With an NPI yield of 9.9%, management expects the acquisition to be yield accretive. The acquisition will be fully funded by proceeds from the recent issuance of perpetual securities (S$250m). 
  • The REIT manager has guided for gearing to remain at 37.4% post completion of acquisition. The total portfolio is expected to reach 124 properties and book value of S$5.3b.

Transacted price below asset valuations by independent valuers. 

  • The purchase price of VND339.2b is 3% below the average appraised value of VND350.5b by independent valuers CBRE and JLL.

Asset details. 

  • The asset (MLT's third in Vietnam) has a remaining land lease of 39 years, and is well connected to Ho Chi Minh City, Tan Son Nhat International Airport and various seaports. The asset is 100% occupied, with WALE of 1.8 years, a tenant base of mainly international third-party logistics providers such as Kubota Corporation and DKSH.
  • Vietnam now accounts for about 1.9% of total portfolio value.

No uplift to target price. 

  • Despite factoring in DPU accretion of 0.3-0.7% from the transaction, risk is marginally heightened due to the unhedged exposure (S$/US$ funding) to an emerging market like Vietnam. As such, we raise our required rate of return by 5bp to 6.7% (6.6% previously), resulting in an unchanged target price of S$1.28.


EARNINGS REVISION/RISK

  • We tweak upwards our DPU estimates by 0.3%, 0.6% and 0.7% for FY17-19 respectively after factoring in the latest acquisition. 
  • We raise our required rate of return by 5bp to reflect the slightly higher risk profile of the transaction.


VALUATION/RECOMMENDATION

  • Maintain BUY and target price of S$1.28, based on a two-stage DDM model (required rate of return: 6.7%; terminal growth rate: 1.5%)

SHARE PRICE CATALYST

  • Yield-accretive acquisitions.




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-09-29
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.28 Same 1.280



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