Global Logistic Properties Limited - Phillip Securities 2017-02-13: Upside expectations mostly priced in

Global Logistic Properties Limited - Phillip Securities 2017-02-13: Upside expectations mostly priced in GLOBAL LOGISTIC PROP LIMITED MC0.SI

Global Logistic Properties Limited - Upside expectations mostly priced in

  • 9M17 revenue/profit after taxation and minority interests (PATMI) met 74%/75.5% of our full-year FY17 forecast.
  • Met 91% of US$200 million full year development profit target and maintained a development margin of 29% (>25% targeted margin).
  • Monetisation of China assets still in the cards; expect updates in the next few quarters.

Operating performance remains stable and expected to stay resilient; lease ratio and effective rents in core markets continues to be steady 

  • Operating performance in 3Q17 across portfolio continued to delivered steady performance as effective rents and lease ratios across core markets remained largely unchanged compared to the previous quarter. 
  • We expect portfolio performance to remain steady in the near term as Management continues to be selective on pursuing new developments, where the Group began US$294 million of new developments in stronger markets in China with an average lease ratio of 89% in 3Q17, representing 21% of FY17’s new development start target or 5.6% RNAV of China assets.

Expanding cap rate compressions in China assets further fuels potential for asset monetisation 

  • GLP’s China portfolio saw a 11 BPS quarter-on-quarter cap rate compression to 6.3% in 3Q17 which was within our expectations. 
  • We have adjusted our estimates to factor in further cap rate compressions of 20 - 30 BPS for the rest of 2017 in the Group’s China portfolio amid improving sentiments in the Chinese economy that has fuelled greater demand for logistics space. 
  • In addition, further cap rate compressions will benefit asset values amid a potential monetisation of China assets which we view is likely to take place in the next few quarters. As China assets made up 57% of the group’s total net asset value as at 31 December 2016, a monetisation will unlock value of these assets and significantly benefit shareholders.

Likely to look beyond existing core markets for growth following the establishment of USIPIII; Growth in AUM of fund management platform was up 7.7% YoY 

  • The Group has established US Income Partners III (USIPIII) with asset under management worth US$1.5 billion, expanding total assets under management (AUM) of the fund management platform by 7.7% to US$37.7 billion as at 9M17. The growth in AUM is the lowest in the past five years since FY12. 
  • We are of the view that following the establishment of USIPIII, the Group is likely to consider other mature markets for growth where Management mentioned that Europe is a potential market for acquisitions.

Investment Actions 

  • While an improving global economic landscape will translate to greater demand for logistics space and in turn benefit the Group’s operations and subsequently a positive impact on asset values, we believe the current share price has largely priced in the upside expectations. 
  • We have downgraded our call to “Neutral” with an upgraded TP of S$2.60.

Peter Ng Phillip Securities | http://www.poems.com.sg/ 2017-02-13
Phillip Securities SGX Stock Analyst Report NEUTRAL Downgrade ACCUMULATE 2.60 Up 2.310