Mapletree Industrial Trust - OCBC Investment 2017-04-25: Still Resilient, BUY with Higher FV

MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Still resilient, BUY with higher FV

Mapletree Industrial Trust (MIT) reported its 4QFY17 results which met our expectations.
Gross revenue increased by 4.5% YoY to S$87.8m. Growth was underpinned by higher rental rates for its Flatted Factories, Hi-Tech Buildings and Stack-up/Ramp-up Buildings, coupled with contribution arising from Phase One of the built-to-suit project for Hewlett-Packard Singapore from mid-Dec 2016, but partially offset by lower portfolio occupancy.
NPI jumped 6.4% YoY to S$66.0m, driven by higher margins (75.1%; +1.3 ppt YoY) due largely to lower property maintenance expenses and marketing commission.
DPU came in at 2.88 S cents, representing YoY growth of 2.5%.
For FY17, MIT’s gross revenue rose 2.7% to S$340.6m and formed 99.1% of our forecast. DPU grew 2.2% to 11.39 S cents and accounted for 100.9% of our FY17 projection.

Despite headwinds facing the industrial sector, MIT’s operational performance remained largely resilient. Its average portfolio gross rental rate inched up 0.5% QoQ to S$1.94 psf/month in 4QFY17, while overall occupancy rate improved by 1 ppt QoQ to 93.1%.
There were mixed signals from renewal leases signed during the quarter. Positive rental reversions were recorded for Hi-Tech Buildings (+4.0%), Business Park Buildings (+1.0%) and Flatted Factories (+0.6%), but its Stack-up/Ramp-up Buildings and Light Industrial Buildings saw negative rental reversions of 4.3% and 0.6%, respectively.
In terms of financial position, MIT’s balance sheet remains strong, with a low aggregate leverage ratio of 29.2%, as at 31 Mar 2017. 74.9% of its borrowings have been hedged. The weighted average hedge tenor is 4.0 years, with none of the hedges due to expire in FY18.

We incorporate this latest set of full-year results in our model, and fine-tune our assumptions. Our FY18 and FY19 DPU forecasts are reduced marginally by 0.5% and 0.2%, respectively. However, as we roll forward our valuations, we derive a higher fair value estimate of S$1.93 (previously S$1.88).
Coupled with a healthy FY18F distribution yield of 6.7%, we maintain BUY on MIT.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-04-25

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.93 Up 1.880