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.

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.

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.

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%.

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.

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.

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