A more prudent approach
- GLP’s 1Q16 core profit was fairly in line with our estimate, making up 20% of our FY16 forecast.
- The group enjoyed strong revaluation uplift from higher asset values as well as better rental performance, which helped offset the higher minority interest leakage at the bottomline.
- With increasing near term uncertainty in China, GLP lowered its FY16 China development growth targets by 21%.
- We cut our FY16-18 EPS estimates by 5-9% and reduce our RNAV-based target price to S$3.25.
- Even so, we stay positive on the longer term prospects of the modern logistics warehouse sector.
- Maintain Add.
1Q results driven by higher asset values
- GLP posted 1Q16 net profit of US$268.1m (+49% yoy) on a 12% rise in revenue to US$190.2m.
- China reported a 50% jump in net profit to US$99m due to higher operating results, development gains from new completions and revaluation uplift from cap rate compression (25bp).
- Japan enjoyed a 20% hike in net profit to US$160m with the completion of two properties and revaluation gains from cap rate compression (11bp) while Brazil posted greater fair value gain as well as rent growth.
- New contributions from the US and lower net finance costs helped bolster the bottomline.
- Excluding revaluation gains and forex impact, earnings would have been US$56.6m, -7% yoy, i.e. c.20% of our FY16 estimates.
Lowering FY16 China development targets
- The group recorded 1.1m sq m (+48% yoy) of new and expansion leases, largely in China (690k sq m) and Japan (80k sq m).
- There was same-store rent growth of 5.5-8.4% in China, Japan and Brazil while the US properties enjoyed 7.5m sq ft of new and renewal take-up and rent growth of 4%.
- Portfolio occupancy averaged 92% although China dipped 3% pts to 88%.
- With the increased near term uncertainty in China, GLP guided for lower development start and completion growth targets to 5%/12% to US$1.7bn/US$1.1bn respectively, while keeping its forecasts for Japan and Brazil.
- It still aims to complete US$8bn worth of projects in the next 3-5 years.
- Meanwhile, the purchase of its second US logistics portfolio should enhance GLP’s bottomline when the deal is completed by Nov 2015.
- The balance sheet is healthy with a see-through net debt to asset ratio of 14% post acquisition.
Maintain Add
- In our view, the longer term prospects of the modern logistics warehouse sector are intact in GLP’s key markets, led by strong domestic consumption and the lack of modern space.
- With the slower pace of China development starts and completion growth, we cut FY16-18 EPS by 5-9%.
- We trim our RNAV and target price (parity to RNAV) to S$3.25.
Analyst: LOCK Mun Yee; TAN Xuan, CFA
Source: http://research.itradecimb.com/
