Global Logistic Properties Ltd - OCBC Investment 2016-05-20: Chinese Headwinds Getting Stronger

Global Logistic Properties Ltd - OCBC Investment 2016-05-20: Chinese Headwinds Getting Stronger GLOBAL LOGISTIC PROP LIMITED MC0.SI 

Global Logistic Properties GLP - Chinese Headwinds Getting Stronger

  • FY16 numbers within expectations
  • Lower FY17 start target in China
  • FV estimate dips to S$2.37.

FY16 results in line with expectations

  • GLP reported that its FY16 PATMI increased 47.9% YoY to US$719.1m primarily due to higher asset values in China, development completion gains in Japan and contributions from its US business. 
  • In terms of the topline, FY16 revenues rose 9.8% YoY to US$777.5m as the group benefited from the completion and stabilization of development projects in China with higher rents, the inclusion of management fee income from GLP US Income Partners 1 and GLP US Income Partners II, partially offset by the syndication of GLP Brazil Income Partners II Portfolio to 40% and the divestment of properties to GLP J-REIT. 
  • A final dividend of 6.0 S-cents is proposed. 
  • Overall, we judge these results to be within expectations and FY16 PATMI constitutes 101.6% of our full year forecast.

Lower development start target in China for FY17

  • Over FY16, the group earned US$150m in fund management fees, up 38% YoY, and we understand that 66% of the 2nd US portfolio has been syndicated and management expects to fully syndicate the remainder shortly to retain a stake of less than 10%. 
  • In GLP’s main market China, while the group achieved its FY16 targets for development starts (US$1.7b) and completions (US$1.2b), management stated that they are seeing over-supply in a few locations, including Chengdu, Wuhan and Tianjin, and guided for a lower US$1.4b development start target in FY17. 
  • Looking further ahead, they would likely take a disciplined approach in monitoring demand-supply conditions and for the Chinese lease ratio to reach levels above 90% before growing their start targets significantly. 
  • We see it as a positive that GLP is taking a pragmatic and disciplined approach to capital allocation in current conditions, and continue to see long-term value in GLP’s shares at current prices. That said, we are cognizant of the increased scope for volatility ahead as the market continues to seek clarity regarding Chinese macro-economic risks. 
  • Our valuation model is updated for softer cap rates and rental assumptions in China, and our fair value estimate dips to S$2.37 from S$2.68 previously. 
  • Maintain BUY.

Eli Lee OCBC Securities | 2016-05-20
OCBC Securities Analyst Report BUY Maintain BUY 2.37 Down 2.68