Mapletree Industrial Trust - Turning round the corner
BUY with revised TP of S$1.94.
- We maintain our BUY call with a revised TP of S$1.94, offering a total return of 18% (11% upside and 6.7% yield).
- We believe that Mapletree Industrial Trust (MINT) offers a commanding 5% CAGR in DPU growth over FY18F-19F, which is more than double that of the industry average.
- In addition, we remain confident that the Manager has the flexibility to execute on more developments or acquisitions which present as upside surprise to earnings.
Where we defer.
- MINT to benefit from the turnaround of the industrial market. We see the industrial sector bottoming out in 2017, a view which is not shared by consensus at this point. Our positive stance is premised on
- spike in new industrial supply is projected to peak in 2017 (c.13% increase in 2018) and fall substantially from 2018 onwards,
- recent positive numbers coming out of Singapore industrial production, if sustained, could mean that the slack in vacancy rates could be absorbed from 2018 onwards.
- MINT with over 31% of its leases up for renewal in 2018, can benefit when these leases are rolled over, implying that consensus earnings could be revised upwards.
Potential Catalyst: Acquisitions/better-than-projected income
- Conservative gearing empowers REIT to acquire accretively.
- MINT’s balance sheet is lowly geared at c.30% and with support from capital markets, MINT has significant debt-funded capacity for M&A, acquisitions or to undertake development opportunities.
- 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 higher TP of S$1.94.
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 targeting to have 65-70% of interest rates hedged.