Mapletree Industrial Trust - CIMB Research 2015-10-21: New AEI a potential medium-term booster

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - New AEI a potential medium-term booster

2QFY16 results boosted by Equinix contributions and organic growth.
Rental reversions were positive but gap between passing and new rents continued to narrow.
Rising cost pressure to dampen NPI margin.
New Kallang Basin AEI to provide medium-term booster.
Maintain Hold with unchanged DDM-based target price of S$1.66.

MINT reported a 7.7% rise in 2QFY16 distribution income to S$48.9m on the back of a 6.2% increase in revenue to S$82.7m. DPU expanded 7.3% to 2.79 Scts, accounting for c.27% of our full-year forecast.
The better results were due to contributions from Equinix, higher portfolio occupancy of 93.8% as well as a 3.3% yoy improvement in average portfolio rent.

In terms of segment, NPI for business parks was dragged by lower renewal rents despite an increase in occupancy to 89%.
Additionally, whilst all other segments recorded qoq improvement, the gap between renewal and passing rents for flatted factories and hi-tech buildings narrowed significantly and there is likely to be limited scope for positive rental reversions in the coming quarters. Hence, DPU growth will likely come from redevelopment or acquisition opportunities.

The NPI margin in 2Q came in at 73.7% vs. 72.1% a year ago, thanks to stringent cost management.
Going into 2HFY16, with continued cost pressure on property expenses, such as maintenance, we anticipate the NPI margin to weaken slightly.
New Kallang Basin AEI to provide medium-term booster MINT plans to develop a new 11-storey hi-tech building at an existing open car park space and undertake upgrading works on existing buildings in the Kallang Basin Cluster 4 property. This speculative build S$77m exercise will add c.317,000 sf of GFA. On completion in 4QCY17, MINT targets to generate an 8% yield on cost for this project. This cluster is located within the Kallang iPark, an upcoming industrial hub for high value-add and knowledge-based businesses. MINT has significant debt headroom to undertake this exercise, with a current gearing of 29.7%.

We have raised our FY16 and FY17 DPU forecasts by a marginal 0.2% to 10.4 Scts and 10.9 Scts, respectively. However, our DDM-based target price remains unchanged at S$1.66.
MINT is currently trading at 1.13x P/BV, on the higher end of its peers trading range. With limited near-term upside and stronger earnings growth only from FY17 onwards from the completion of the Hewlett Packard BTS project, we maintain our Hold rating.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-10-21

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.66 Same 1.66