Global Logistic Properties - Phillip Securities 2016-01-29: Fundamentals sound; long term growth intact

GLOBAL LOGISTIC PROP LIMITED MC0.SI

Global Logistic Properties Limited - Fundamentals sound; long term growth intact

Entry into the US market in the past year via US Income Partners I and II provides another engine for growth while riding on the recovering US economy.
China development programme expanded via a joint venture (JV) with China Materials Storage and Transportation Development (CMSTD), and the establishment of a new development fund, CLF II which has more than 50% of investors from CLF I.

Signs of stabilisation in China amid recovering lease ratios and resilient rentals amid robust demand for leasing space.
FY16 development targets adjusted downwards by 17.2% and 1H16 value creation margin came in at ~16%, significantly below GLP’s benchmark target of 25%.
Development starts in Japan muted in 1H16, partially offset by vigorous progress in development completion where the group has already met 64% of FY16 target.

As domestic consumption in China and Brazil continues to gain momentum amid economic reforms, demand for logistics space is expected to remain strong.
At the same time, e-commerce businesses are leasing a substantial amount of logistics space (Brazil: 18%, China: 26%, Japan: 12%, US: 10%) under GLP’s portfolio.

With a rapid development cycle as short as less than one year, and being one of the largest operator of modern logistic facilities in key markets, creates a network effect for tenants. This enables tenants to expand into multiple locations and reach consumers more efficiently.
As a result, there is an added stickiness of tenants where 60% of new leases in FY15 were signed from existing tenants.

GLP’s fund management platform allows access to reliable third-party capital, delivering risk-adjusted returns through management fees and promotes, and increasing its market share via a larger pool of development opportunities, which in turn enhances its network effect.
Total assets under fund management is US$27.3 bn.

After completing the syndication of GLP US Income Partners I (GLPUSI), management estimates 3Q16 net gearing (net debt/total assets) to stay low at ~15%, coupled with a rich hoard of cash US$3.1 bn (net debt position of ~US$900 mn).

Headwinds in macroeconomic conditions could slow demand for space in key markets
Further delays in government approval for developments in China
Foreign exchange volatility in terms of RMB, JPY and BRL could negatively impact P&L and balance sheet

We are positive on GLP’s long term prospects and believe that the transformation of China into a consumption-based economy is the key growth driver of GLP’s business model.
We opine that the recent weakness in share price reveals opportunities for investors to gain entry into a solid business at an undemanding valuation.
We upgrade our call to BUY, with a lower target price to $2.48 (previously $2.80) based on 1X FY16F RNAV.
The reduction in RNAV stems from a downward adjustment of development targets in China, coupled with headwinds in the global macroeconomic environment.

Peter Ng Phillip Securities | http://www.poems.com.sg/ 2016-01-29

Phillip Securities SGX Stock Analyst Report BUY Upgrade HOLD 2.48 Down 2.80