Mapletree Logistics Trust - A banner year ahead
Maintain BUY, TP S$1.28.
- We believe that Mapletree Logistics Trust (MLT) remains on a growth path.
- Supportive capital markets and available of acquisition opportunities from Sponsor could drive earnings estimates higher.
- Our BUY call is maintained and TP is raised to S$1.28 as we roll forward valuations. Stock offer attractive yields of 6.6-7.0%.
Where we defer.
- Consensus estimates to see upside bias, DPU trend to bottom out in 2017.
- We believe that the Singapore warehouse subsector (c.38% of revenues) is approaching a cyclical bottom by the end of 2017 where new supply will fall off significantly after that. Rentals should also be on the way to recovery from 2018 onwards.
- In addition, supported by brighter prospects in its major markets of Hong Kong, China and Australia, the group is poised to reverse its downward trend in DPU seen in the past two years.
- Acquisitions, where we have priced in S$250m (50% funded by equity), will be a key catalyst for consensus to re-rate earnings.
Potential Catalyst: Acquisitions / better opertional results Interest savings from refinancing its perpetuals.
- With the first call date for its 5.375% perpetual in September 2017, we believe that MLT can refinance with a new perpetual at lower coupon. Estimated savings will present as upside surprise to consensus estimates.
- Portfolio interest rates are expected to remain stable given a majority of their loans are in JPY, which we see lesser risks of higher rates in the medium term.
- We maintain our BUY call with revised TP of S$1.28. The stock offers a total potential return of 25%.
Key Risks to Our View
- Acquisitions ramping up faster than expected. A faster-than-projected acquisition pace or a better-than-expected outlook for the Singapore warehouse market will translate to positive adjustments to our earnings estimates, and re-rate the stock higher.