Mapletree Industrial Trust - Maybank Kim Eng 2016-04-27: Good result. Growth will reward patience.

Mapletree Industrial Trust - Maybank Kim Eng 2016-04-27: Good result. Growth will reward patience. MAPLETREE INDUSTRIAL TRUST ME8U.SI 

Mapletree Industrial Trust (MINT SP) - Good result. Growth will reward patience. 


Results in-line. Flat FY3/17. Growth thereafter. 

  • Full year results in-line, forming just over 100% of our revenue/NPI/DPU estimates. 
  • We expect the coming year to be flat, as the weak leasing environment persists. 
  • But for FY3/18-19, we look for robust DPU growth as: 
    1. supply tightens dramatically; and
    2. new projects under development kick-in.
  • We tweak FY3/17-18 estimates 0.5%/0.2% and introduce FY3/19’s. Applying our unchanged 7% yield peg to FY3/18-19 blended DPU, we raise TP to SGD1.78 (+4%). 
  • Maintain BUY. 
  • Forward yield of 7.4%/7.8% is attractive given that MINT’s yield, now at 6.8%, is on a re-rating trend to reflect its improving portfolio quality. 

FY3/16 was a year of outperformance 

  • 4Q revenue/NPI/DPU grew 5.8%/7.4%/6% YoY. 
  • For the full year, growth was similar at 5.6%/7.2%/6.9%, just topping our estimates. 
  • To recap, growth was due to: 
    1. increases in year-average occupancy across all product types, factories 95.3% vs. 93.9%, high-spec 89.6% vs. 79.5%, and business parks 88.9% vs 81.5%); and 
    2. the addition of the build-to-suit data centre for Equinix. 
  • Economic growth last year was weak amid robust supply, thus the leasing environment was challenging. 
  • Full year reversions for factories, high-spec, and business parks were merely 0.2%/0.3%/1.2%. So it was a credit to management for achieving growth through occupancy under tough conditions. 

But don’t expect much from FY3/17 

  • Falling short of ramping up average occupancies appreciably, we expect FY3/17 to be a flat year. But demand/supply conditions are just as unfavourable, if not worse, than last year. 
  • Sequentially, things are slow: 4Q occupancy was stable at 94.6% (3Q: 94.7%). 
  • Revenue/NPI/DPU barely budged QoQ at 0.9%/0.2%/-0.4%. 

Instead, look forward to FY3/18-19. 

  • 2017 and 2018 are lean supply years, especially for high-spec and business parks. We expect portfolio occupancy to increase in those years, and for high-spec developments, Hewlett Packard-BTS and Kallang Basin 4, to also start contributing. 
  • FY3/18-19 DPUs should see robust 8.7%/5.2% growth, even after factoring in some drag from Johnson & Johnson possibly not renewing their lease in June 2018. 

Swing Factors 


Upside 

  • Occupancy continues to outperform expectations. 
  • Spot rents reverse negative trends, thereby arresting softening rent reversions. 
  • MINT’s debt headroom is comfortably c.SGD400m before aggregate leverage hits 40%, which gives it ample firepower for acquisitions and asset enhancement. 

Downside 

  • Occupancy and rent reversions go south, as 2016 is still an oversupplied market. 
  • Non-accretive acquisitions. Business park NPI yields are c.6%, below MINT’s current traded yield. 
  • Interest cost rises faster than expected. We have factored in two rate hikes for 2016.



Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-27
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.78 Up 1.71


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