Mapletree Industrial Trust - CIMB Research 2016-01-28: Resilient 3Q priced in

Mapletree Industrial Trust - CIMB Research 2016-01-28: Resilient 3Q priced in MAPLETREE INDUSTRIAL TRUST ME8U.SI 

Mapletree Industrial Trust - Resilient 3Q priced in 

  • MINT’s 3QFY16 DPU of 2.82 Scts was slightly above our expectation, at 27% of our full-year forecast. 9MFY16 DPU of 8.34 Scts formed 80% of our FY16 forecast. 
  • MINT achieved higher portfolio occupancy and passing rent. 
  • …but passing rents and new leases are now roughly on par. 
  • Completion of AEI at Kallang Basin 4 pushed back from 4Q17 to 1Q18. 
  • We raise FY16 DPU by 3% to factor in the good results. Maintain Hold with lower DDM-target price of S$1.62. 

■ 3QFY16 driven by stable operational performance 

  • MINT reported a 5.6% increase in 3QFY16 DPU to 2.82 Scts. The good operating performance was driven by higher occupancies and rental rates achieved across all segments. Operating expenses of S$21.4m was 1.6% qoq lower, due to lower utilities and property taxes. As a result, NPI margin widened 0.5% pts to 74.3%. Of note, business parks’ NPI margins expanded the most at 5.5% pts qoq to 68%; while NPI margins of stack-up/ramp-up buildings shrank the most at 3.7% pts qoq to 78.1%. 

■ Positive rental revisions at flatted factories and business parks… 

  • The REIT achieved higher portfolio occupancy of 94.7% (+0.9% pts qoq) and higher portfolio passing rate of S$1.89psf/mth (+0.5% qoq) in 3QFY16. 
  • More significant rental revisions was secured at the flatted factories (+4.3%) and business parks (+5.7%). 
  • In addition, overall tenant retention was higher at 84.2% (2QFY15: 70.3%). Looking ahead, 2.1% of leases are due for renewal in 4QFY16 and 23.2% in FY17. 

■ … but passing rents and new leases are now roughly on par 

  • With rising supply – the bulk of the estimated 4.3m sq m of new industrial space or c.10% of the total stock are expected to come on stream in 2016-17 – we deem that there is likely to be limited scope for positive rental reversions in the coming quarters. This is especially as new leases for flatted factories are c.6% above passing rents. 

■ Development updates: AEI at Kallang Basin 4 pushed back 

  • Phase 1 of the BTS project for HP is on track for completion by 1H16. 
  • We note that MINT would bear the operating expenses and taxes for the initial rent-free period of six months. Moreover, the targeted completion of AEI at Kallang Basin 4 has been delayed from 4Q17 to 1Q18. 
  • Separately, gearing decreased to 29.3% (2QFY15: 29.7%) as S$21.5m from the 2Q DRP (Distribution Reinvestment Programme) was used to repay borrowings. 
  • MINT would suspend the DRP after 3QFY16 distributions. 

■ Maintain Hold with lower target price of S$1.62 

  • We raise our FY16 DPU by 3% to factor in the good results. However, we believe that MINT’s resilience has been priced in, with MINT trading at 1.1x P/BV, on the higher end of its peers’ trading range, and against its historical average of 1.2x. 
  • Coupled with limited near-term upside, we maintain Hold with a lower DDM-target price as we raise our equity discount rate, in line with the sector re-alignment.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-01-28
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.62 Down 1.66