Mapletree Logistics Trust - OCBC Investment 2016-05-03: Downgrade to HOLD following share price run-up

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MAPLETREE LOGISTICS TRUST M44U.SI 

Mapletree Logistics Trust: Downgrade to HOLD following share price run-up 

• 4QFY16 DPU fell 2.7% YoY 
• Rental reversions have moderated 
• Uncertain outlook ahead 

4QFY16 results within expectations 

• Mapletree Logistics Trust (MLT) reported its 4QFY16 results which were in-line with our expectations. 
• DPU slipped 2.7% YoY to 1.80 S cents despite a 4.4% growth in gross revenue to S$88.4m. This was due largely to a lower NPI margin of 81.7% (-1.4 ppt YoY), higher management fees and an increase in borrowing costs. 
• For MLT’s full year results, gross revenue rose 6.0% to S$349.9m and formed 99.7% of our FY16 projection. 
• DPU of 7.38 S cents represented a decline of 1.6% and accounted for 99.1% of our forecast. 

Some leasing risks ahead 

• During FY16, MLT renewed/replaced 631,000 sqm of leases which were due to expire, and achieved an average positive rental reversion rate of 4%. However, rental reversions have moderated, coming in at 0.6% in 4QFY16. 
• On a positive note, management actively pursued its forward renewals, and as a result brought down its lease expiries in FY17 to 14.6% of NLA, versus 21.1% at the start of FY16. 
• However, MLT still has some leasing risks ahead, in our view, including six single-user assets (SUA) that are due for renewal. Of these six, two are from Singapore and both tenants have already indicated their intention not to renew their leases. 
• The biggest risk comes from KPPC Co Ltd in Korea, one of MLT’s top ten customers, which contributed 2.7% of MLT’s gross revenue. 

Downgrade to HOLD 

• We lower our FY17 DPU forecast by 4.3% as we factor in lower NPI margin and higher finance cost assumptions. 
• Rolling forward our valuations, our DDM-derived fair value estimate dips from S$1.04 to S$1.02. 
• MLT’s share price has increased 9.1% YTD and 18.9% since we upgraded the stock to a ‘Buy’ on 26 Jan this year. 
• In light of its strong share price performance, coupled with a reduction in our fair value and uncertain near-term outlook ahead, we downgrade MLT to HOLD. 
• The stock trades at FY17F distribution yield of 6.8%, which is slightly below its 5-year average forward yield of 6.9%.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-05-03

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