GLOBAL LOGISTIC PROP LIMITED
MC0.SI
Global Logistic Properties Limited - Softening demand in China
- Global Logistic Properties Limited (GLP) posted its 4Q16 results before market opening on 19 May where we have subsequently tuned in for an analyst conference call.
Operating performance remains strong despite weaker economic landscape in key markets.
- Rental rates across GLP’s portfolio grew except for China (27.7% of GLP's portfolio by rental income) which maintained at the previous quarter of RMB1.09/sqm/day, however, lease ratios have dipped across the board except for Japan (20.9% by rental income).
- GLP’s portfolio lease ratio as at 31 Mar-16 is down 1 ppts to 92% compared to a year ago.
Rent pressure and higher vacancies expected in weaker markets in China due to oversupply; Management intends to focus on locations with strong demand and limited land supply.
- Current portfolio in China comprises mainly of properties in stronger markets as categorised by stronger lease ratios and absorption rates, where these markets formed 57% of net asset value in China as at 31 Mar-16.
- In addition, 11% of China’s properties comprise properties from weaker markets, and the remaining 32% of properties are located in stable markets.
- We expect further moderation in China portfolio’s lease ratio (4Q16: 87%, 3Q16: 88%) and rental rates, as a significant proportion of leases in China (29%) are due for renewal in 2017 on the backdrop of a softer economic landscape, as well as exposure to certain weaker markets in China.
- Management expects higher vacancies and rent pressures in the weaker markets in the near term, and will focus on new developments at locations with strong demand and limited land supply.
Development start targets to be trimmed, as demand for space in key markets are expected to falter; Management to boost portfolio occupancy rates.
- Consistent with the softening market conditions in China, management has trimmed development start targets by 17.6% to US$1.4 bn in FY17 as compared to the actual development starts of US$1.7 bn in 2016.
- FY17’s development start targets are expected to form 17% of the existing value of completed properties in China.
- Nonetheless, management remains confident to deliver the benchmark value creation margin of 25% (FY16: 27%). Meanwhile, GLP iterated its focus to boost efforts towards tackling the faltering occupancy rates in its China portfolio.
Investment Actions
- We continue to favour GLP’s long term prospects with demand of modern logistic facilities driven by the growing levels of domestic consumption and supply chain reconfigurations in key markets. However, headwinds in the near term such as an oversupply of industrial properties and the softening business landscape in China are adverse factors that are likely to moderate its operating performance in the upcoming quarters.
- We have revised our estimates for FY17 to take into account of the aforementioned factors and included a potential cash inflow of c.US$1.8 bn from the remaining syndication of US Income Partners II, which management stated that the transaction is pending final paperwork and in its final phases from completion.
- We have adopted a 15% discount to our full year RNAV estimates to take into account of the burgeoning uncertainties in key markets which GLP is exposed to. Consequently, we have downgraded our rating to “Accumulate” with a TP of $2.28 (previously $2.43).
- Nonetheless, GLP’s undemanding valuations present opportunities for investors to accumulate on share price weaknesses.
Peter Ng
Phillip Securities
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http://www.poems.com.sg/
2016-05-23
Phillip Securities
SGX Stock
Analyst Report
2.28
Down
2.43
