Mapletree Industrial Trust - Bring on HP!
Maintain BUY, TP S$1.90.
- We maintain our BUY call and TP of S$1.90 on Mapletree Industrial Trust (MINT) on the back of a steady DPU growth profile of 2.3% over FY17-19F (vs 1.2% industrial REIT average).
- The REIT offers high earnings visibility and we have confidence that the Manager has the flexibility to execute on more developments to exploit its conservative balance sheet. This implies potential upside to earnings.
Steady set of results with upside from 3QFY17 onwards.
- 2QFY17 (FYE Mar) topline and net property income (NPI) was up 1.8% and 4.3% to S$84.2m and S$63.6m respectively, mainly on the back of higher rentals achieved coupled with better cost containment. As a result, NPI margins came in higher at 75.6% vs 73.8% a year ago.
- Interest costs were fairly stable. As a result, distributable income was 3.4% higher at S$50.6m, but DPU rose a slower 1.4% mainly due to higher units in issue (dividend reinvestment scheme coupled with management fees issued in units previously).
Flexibility from low gearing.
- MINT’s balance sheet is lowly geared at c.30%, which is one of the lowest in the industrial REIT sector, and gives the Manager significant debt-funded capacity for acquisitions or to undertake developments by taking part in built-to-suit projects (BTS) or asset enhancement initiatives.
- We have not assumed any further acquisitions or developments (apart from those announced) in our forecast.
- MINT’s resilience is a value trait in this market and has yet to be reflected in its current share price.
- We maintain our BUY call and TP S$1.90.
Key Risks to Our View
- Rising interest rates An increase in refinancing rates will negatively impact distributions. However, we note that MINT has minimised these risks by having c.68% of its interest cost hedged into fixed rates.