Mapletree Industrial Trust - CIMB Research 2016-11-23: Growing momentum in hi-tech buildings

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Growing momentum in hi-tech buildings

We have done a comprehensive review of MINT and its forecasts. We raise our FY17F DPU by 1.7% but cut our FY18-19F by 3.7-6.4%.
Underpinned by the two development projects, MINT offers one of the highest DPU growth rates in our S-REIT coverage.
In the medium term, MINT could expand overseas or make bolt-on data centre acquisitions in the US or European markets.

We expect flatted factories’ rents to hold up and hi-tech buildings’ occupancy to rise sharply. Fiercest near-term pressures will be on business parks.
Attractive entry point emerging; reiterate Add with MINT still one of our top picks.

From ready-built factories in the 1970s to the latest industrial parks, the evolution of Singapore’s industrial landscape has given rise to opportunities for MINT. Through build-to-suit (BTS) solutions and AEIs, MINT has focused on growing its hi-tech buildings since FY14.
As it is, it is ready to harvest what it has sown. The BTS for HewlettPackard is almost completed and will be a major growth driver for the trust.
We forecast hi-tech buildings to account for 30% of the group’s NPI by FY19F (from 20% in FY16).

We forecast MINT to deliver a 3-year DPU CAGR of 2.7% through FY16-19F, one of the highest in the sector.
Growth is underpinned by BTS for Hewlett-Packard (contribute meaningfully from FY18F) and AEI at Kallang Basin 4 (contribute from FY19F). Our growth expectations are relatively moderate vs. the market. We believe that the deviation stems from differences in assumptions for the progressive contributions.
We have delineated the individual contributions from the respective projects in this report.

MINT has been scouring for overseas industrial properties in the past 2-3 years to further drive growth in the medium term. We understand that the trust could be looking at neighbouring countries or countries its sponsor has a presence in.
Additionally, MINT is positive on data centres, where it sees healthy secular demand. The REIT is likely to focus on bolt-on acquisitions in the US and European markets.
Last, MINT has a Right of First Refusal on the sponsor’s Tai Seng development project (end-16 completion).

Underscored by 1HFY3/17 results, we expect rents for flatted factories to hold up. Flatted factories account for 50% of the group’s FY17 NPI.
Furthermore, we expect hitech buildings’ occupancy to rise sharply. However, the negatives are that we see elevated vacancy risks for business parks (especially) and the stack-up/ramp-up cluster.
Meanwhile, light industrial buildings are affected by MTB conversions. On a portfolio basis, we see higher downward pressures on occupancies vs. rents.

The percolation of the Trump effect has roiled REIT markets. MINT has de-rated from a high of 1.33x P/BV in Jul to the current 1.15x. 1.11x P/BV (1 s.d. below trading mean) has served as a strong support level for MINT and the stock is c.6% above the support level.
Reiterate Add with MINT still one of our top picks.
Our DDM target price is reduced (from S$1.90 to S$1.68) on the back of DPU cuts and pricing in of rising yields and steepening curves.
Downside risk, while limited, could come from downward pressure on occupancy and rental rates.

Yeo Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-11-23

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.68 Down 1.900