Global Logistic Properties - CIMB Research 2017-05-19: Benefiting From Cap Rate Compression

GLOBAL LOGISTIC PROP LIMITED MC0.SI

Global Logistic Properties - Benefiting From Cap Rate Compression

FY3/17 core net profit of US$270m was largely within our expectations, forming 96% of our forecast.
Better results were due to higher revaluation surplus and improved organic growth.
FY18F development starts and completions guidance slightly higher on yoy basis.

GLP reported 4QFY17 revenue/net profit of US$227m/US$247m, up 14%/62% yoy. The better results were due largely to revaluation gains from a 10-30bp compression in cap rates.
Stripping out revals, core earnings fell 12% yoy to US$53.6m due to a high base.
On a full-year basis, core net profit came in at US$270m, +16% yoy thanks to organic growth from higher rents and lease-up ratio.
The group proposed a DPS of 6 Scts, translating to a yield of 2.1%.

The group renewed/leased 13.3m sqm of space in FY17 with 8.9% rental growth and a retention ratio of 73%. Portfolio occupancy remained fairly stable at 91%.
The US market continued to see strong rental growth of 16.9%, with Japan at +5.2% and China at a slightly softer +4% vs. +5.3% in 3Q.
Although China’s occupancy dipped to 85%, this was largely due to the inclusion of newly stabilised properties. Management indicated that the demand in Tier-1 and 1.5 cities in China remains robust.

GLP exceeded its FY17 development starts and completion targets by 5-6% and has set slightly higher levels of US$2.2bn and US$1.7bn worth of starts and completions for FY18, respectively. This increment in starts will come from the US while China is projected to remain flat at US$1.4bn. This would continue to underpin development value creation and boost its forward NAV.
Assuming a similar development margin of 28%, the group could realise a share of pretax development profit of c.US$280m.

The fund management business generated FY17 revenue of US$181m, +21% yoy. With US$12bn of uncalled capital, we expect this segment to continue growing.
GLP had gross cash of US$1.2bn as at end-FY17 and a low net debt-to-asset of 19.2%. The group plans to continue to look for new opportunities in new and existing markets.

We lower our FY18-19F earnings estimates by 2-2.4% and introduce FY20F projections post the latest results. However, our RNAV-based TP is lifted by 9.3% to S$3.05 as we roll forward our assumptions and compress our valuation cap rates, in line with the FY17 cap rates.
Key share price catalyst would be a positive outcome of the strategic review, while risks include a downturn in demand for warehouse space which would mean a slowdown in development activities.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-05-19

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