Global Logistic Properties (GLP SP) - UOB Kay Hian 2017-05-22: 4QFY17 Strategic Review Plodding On

Global Logistic Properties (GLP SP) - UOB Kay Hian 2017-05-22: 4QFY17 Strategic Review Plodding On GLOBAL LOGISTIC PROP LIMITED MC0.SI

Global Logistic Properties (GLP SP) - 4QFY17 Strategic Review Plodding On

  • Results came in line with our expectations. 
  • Management refrained from divulging further details on the ongoing strategic review of its business. China operating metrics softened this quarter, while plans for a China income fund remain on the drawing board. 
  • Maintain HOLD with a higher target price of S$2.75 (from S$2.50), pegged at a 19% discount to an increased RNAV of S$3.39/share (from S$3.12). Entry price: S$2.55.



RESULTS


Results in line with our expectations. 

  • FY17 core PATMI came in at US$269.5m, accounting for 98% of our FY17 core PATMI estimate. 4QFY17 headline PATMI of US$247.1m grew 61.7% yoy, on the back of higher revenue (+14.0% yoy), increased contributions from associates and JVs (+174.9% yoy) and higher revaluation gains (+14.8% yoy). Associates and JVs saw their share of results rise mainly from the inclusion of GLP US Income Partners II and appreciation of BRL against the USD.
  • Excluding exceptional items, 4QFY17 core PATMI of US$54.8m was down 10.7% yoy, mainly on lower contributions from its second US portfolio (90% stake divested in 2QFY17) and forex losses.

Strategic review is still in progress

  • Strategic review is still in progress, with management again emphasising that no definitive transaction has been reached, and there is no assurance a transaction could materialise. GLP remains in discussions with shortlisted bidders, with the due diligence process still ongoing.

Proposed dividend payout of 6.0 S cents, unchanged from last year. 

  • This represents a payout ratio of 25.3% from headline FY17 earnings and 74.7% payout from core FY17 earnings.

Softer performance from the China portfolio

  • Softer performance from the China portfolio as 4QFY17 lease ratio dipped 2 ppt qoq to 85% while retention ratio remained modest at 64% (3QFY17: 65%). This was largely attributed to higher development property completions in the quarter (approximately 1m sqm) with lower occupancies, bringing down overall numbers. 
  • New/renewal leases were up 50.5% qoq to 2.83m sqm (69.5% yoy). Effective rent growth on renewals was 4.0% (3QFY17: +5.3%). 
  • GLP believes that China’s mid-long term outlook remains positive, and sees growing demand from the organised retail, auto parts and cold storage sectors. Cap rates remained stable at 6.3% (3QFY17: 6.3%). 
  • Meanwhile, GLP’s Chinese asset recycling plans remain on the drawing board.

Maintain momentum for development targets in FY18

  • Maintain momentum for development targets in FY18, with the company targeting US$2.2b (flat yoy) in development starts and US$1.7b (+6% yoy) in completion targets.
  • GLP met 105% and 106% of its FY17 starts (US$2.1b) and FY17 completions (US$1.5b) targets respectively, while generating a development profit margin of 28%.

Resilient Japan. 

  • Lease ratio was up 1ppt qoq to 98% as new/renewal leases leaped 54.5% qoq to 0.34m sqm (+100% yoy), with effective rent growth on renewals of 5.2% (3QFY17: 6.6%). This was driven by ongoing healthy customer demand and limited supply of modern logistics facilities. Cap rates compressed 10bp qoq to reach 4.7%.

US performance stable, likely scaling up of existing footprint. 

  • Lease ratio stayed stable at 94%, as new/renewal leases declined 27.0% qoq to 0.7m sqm (+1.4% yoy).
  • 4QFY17 effective rent growth was at 16.9% yoy. Cap rates compressed 9bp qoq to reach 5.8%. Management had previously highlighted its intent to pursue acquisitions of stabilised assets in this market.

Cap rate compression in Brazil, by about 39bp to reach 10.1% in 4QFY17.

  • Management opined that Brazil could continue to see lower interest rates (single digits), underscoring higher liquidity and further cap rate compression. The Brazil investment portfolio saw stable lease ratio of 89% in the quarter (3QFY17: 89%), though negative rental reversions of 9.4% were registered.


VALUATION/RECOMMENDATION

  • Maintain HOLD with an increased target price of S$2.75 (from S$2.50), pegged at a 19% discount to our RNAV of S$3.39/share (from S$3.12). 
  • We raised our RNAV estimate by nearly 9%, after updating our US$/S$ forecasts. 
  • We have also lowered our historical RNAV discount by 1ppt from 20% to 19%, after incorporating more recent data points (narrower trading discount between GLP’s share price and its RNAV in recent months).


EARNINGS REVISION

  • We introduce our FY20 earnings forecast and also increase our FY18 and FY19 earnings estimates by 6-10%, by factoring in GLP’s redemption of its perpetual securities last month.


SHARE PRICE CATALYSTS

  • Growth in domestic consumption underpinning logistics demand.
  • Visibility on strategic business review.




Derek Chang UOB Kay Hian | Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-22
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 2.75 Up 2.500



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