Mapletree Logistics Trust - DBS Research 2017-05-02: Taking The Next Quantum Leap

Mapletree Logistics Trust - DBS Vickers 2017-05-02: Taking the next quantum leap MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Taking the next quantum leap

  • 4Q17 DPU of 1.86Scts in line.
  • Operational outlook for major markets appear to be bottoming out.
  • Executing on acquisitions a key driver to earnings.



Maintain BUY, TP S$1.28. 

  • Mapletree Logistics Trust (MLT) offers investors a diversified but rising exposure to growth in the Asia Pacific region's logistics sector. We believe that Mapletree Logistics Trust (MLT) remains on a growth path. 
  • Supportive capital markets and acquisition opportunities from its Sponsor could drive earnings estimates higher. 
  • We maintain our BUY call and S$1.28 TP, offering a total return of close to 20%.


WHAT’S NEW


4Q17 results in line: 

  • Mapletree Logistics Trust(MLT) reported a 9.1% and 10.5% y-o-y increase in revenue and net property income to S$96.5m and S$80.3m respectively. The increase was mainly driven by new contributions from newly acquired properties (mainly in Australia, Vietnam and Korea) and completed asset enhancement initiatives (AEIs) in Singapore.
  • Organic growth remained fairly stable with the trust seeing stable reversions (flattish till marginally positive) for most markets.
  • Distributable income (DI) came in 4.1% higher at S$46.6m, partially offset by higher interest cost to fund its acquisition initiatives. DI also included in S$1m of realised gains from divestment of 20 Tampines Street (S$1.5m a year ago). DPU came in 3.3% higher at 1.86 Scts.
  • NAV inched up higher to S$1.04/unit. Valuation was slightly higher on the back of a slight compression in cap rates portfolio-wide.

Operational outlook appears to have turned the corner: 

  • Portfolio occupancy rates remained stable at 96.3% (96.2% y-o-y) driven by higher occupancy rates from Singapore, Hong Kong. 
  • We understand that occupancy rates should firm in the coming quarters as there are transitory vacancy rates for selected properties in Singapore and South Korea due to back-filling of vacant spaces from conversion of single-tenanted properties due to multi-tenanted properties. This is in line with our view that the operational environment is slowing turning round the corner and on the mend. 
  • For Singapore, the high number of new warehouse space entering the market will be a key dampener to the REIT’s ability to raise rents more significantly going forward. As such, organic growth is likely to remain flattish.

Acquisitions to drive growth. 

  • FY18 will likely remain as an active year for MLT. The Manager is reviewing acquisition opportunities from third parties and from the Sponsor.
  • Markets that the REIT is keen to deepen its presence include Korea, China and Hong Kong, where the Sponsor has competed the development of a warehouse, which is seeing good leasing interest. We have conservatively priced in S$200m worth of acquisitions in our estimates (50% funded by new equity).


Valuation

  • We maintain our BUY call and TP of S$1.28. The stock offers a total potential return of close to 20%.   


Where we differ. 


Consensus estimates to see upside bias, DPU trend to bottom out in 2017. 

  • A good 4Q17 set of results is a testament to our belief that earnings is bottoming out and 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. 
  • We see brighter prospects in MLT’s major markets in Hong Kong, China and Australia, and the group is poised to reverse its downward trend in DPU seen in the past two years. 
  • Acquisitions - we have priced in S$200m (50% funded by equity) - will be a key catalyst for consensus to re-rate earnings.

Potential Catalyst: 

  • Acquisitions / better operational 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 a lower coupon rate. 
  • Potential savings will present as upside surprise to consensus estimates. Portfolio interest rates are expected to remain stable given a majority of loans are in JPY, for which we see lesser risks of higher rates in the medium term.

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





Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-05-02
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.280 Same 1.280



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