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

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.

Reshaping Singapore’s industrial space 

  • 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).

Highest growth in our S-REIT coverage 

  • 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.

What’s next after the development projects? 

  • 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).

Delving into MINT’s resilient portfolio 

  • 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.

Attractive entry point emerging; reiterate Add 

  • 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