Establishing CLF II
- GLP has set up China Logistics Fund II (CLF II) with a potential AUM of US$7bn.
- GLP China will take a 56% share and the remaining by 7 institutional investors.
- This will enable the group to bring in new capital sources while creating more development value as well as expanding its fund management platform (total AUM +36% to US$27.1bn).
- In our view, this move will raise fee income and impact earnings and RNAV from FY18 onwards when the fund ramps up its activities.
- Hence, we increase our FY17-18 EPS estimates by 1.4-4.4% to factor in the higher recurrent income stream.
- We retain our Add rating and RNAV-based target price of S$3.31.
What Happened
- GLP announced the setting up of its China Logistics Fund II (CLF II).
- GLP China will be the manager, and will own a 56% stake with the remaining shares held by seven institutional investors including five from Asia, one from North America and one from the Middle East.
- CLF II will have committed equity of US$3.7bn and investment capacity of US$7bn.
- CLF II will develop 13m sq m of GFA in China over the next four years.
- CLF II will start acquiring land later this year and commence construction in Apr 16.
- CLF II is GLP's exclusive vehicle for new, wholly-owned logistics development projects in China and does not have a seed portfolio.
What We Think
- This news is not entirely new as GLP had earlier signalled its intention of setting up CLF II, although the US$7bn AUM exceeds the earlier indication of US$6bn due to strong investor interest.
- We view this move positively as it will expand GLP’s fee income and allow the group to optimise its sources of third party capital as well as boost value creation.
- As a result of CLF II, total AUM is 36% higher at US$27.1bn.
- GLP will fund its share of equity with cash (US$1.4bn at end-FY15) and credit facilities.
- CLF II’s development activities will form part of the group’s targeted development starts growth of 30%, which we have factored into our existing forecast, while the impact of higher fee income on earnings and RNAV should gather pace from FY18 onwards.
- We reckon that the additional fee income from CLF II could add another 10-13Scts to RNAV when completed, assuming a 15x multiple.
What You Should Do
- We tweak our FY17 and FY18 earnings estimates upwards by 1.4-4.4% to factor in the increased fee income from CLF II.
- We continue to like GLP for its leadership position in the modern logistics warehouse sector in China, and the accelerated growth momentum of its development activities and fund management business.
- These activities should move the group closer to its medium-term ROE target of 12%.
- We retain our Add rating and maintain our existing RNAV and target price (parity to RNAV) at S$3.31.
(LOCK Mun Yee; TAN Xuan, CFA)
Source: http://research.itradecimb.com/
