Mapletree Logistics Trust - CIMB Research 2017-04-28: Hitting The Right Notes

Mapletree Logistics Trust - CIMB Research 2017-04-28: Hitting the right notes MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - Hitting the right notes

  • We liked what we heard at the post-results briefing: the manager would look to work assets in China and Korea, while investment activities would drive DPU growth.
  • However, we maintain Hold, with higher TP, as the stock is trading at 5-year mean.
  • FY3/17 DPU of 7.44 Scts (+0.8% yoy) was in line with Bloomberg consensus and our expectations, at 100% of our full-year forecast. 4QFY17 DPU was at 25%.
  • Portfolio occupancy ticked up 20bp to 96.3% in 4QFY17. MLT achieved portfolio positive rental reversion of 0.4% (FY17: flat).
  • Net revaluation gain of S$39m, mainly due to cap rate compression for HK assets.

4QFY17 results highlight: aided by inorganic growth 

  • 4QFY17 DPU grew 3.3% yoy to 1.86S Scts. 
  • Growth was due to stabilisation of conversions, higher HK contributions, contributions from asset enhancement initiatives (AEI, redevelopment of 5B Toh Guan & Moriya Centre in Japan) and acquisitions (four accretive acquisitions totaling S$313m). 
  • Overall growth was partly offset by lower contributions from certain properties in Singapore and South Korea. 
  • 5B Toh Guan achieved 100% occupancy in 3QFY17, with c.30% currently contributing (cash basis).

Portfolio occupancy and rental reversion in the right direction 

  • 4QFY17 portfolio occupancy rose 20bp qoq to 96.3%, with 40bp qoq rise in Singapore and 220bp qoq rise in China. 
  • Weighted 4QFY17 portfolio rental reversion was +0.4% – Japan +0.5%, HK +5%, China +1%, and Vietnam +3%. FY17 portfolio rental reversion was flat. 
  • 17.5% of NLA is up for renewal in FY18, 2.9% of which are single-tenanted buildings, and the group is at the tail-end of converting them to multi-tenanted buildings.
  • Tenant profile has shifted from third-party logistics (3PL)-skew to consumer end-users.

Portfolio valuation 

  • There was a net revaluation gain of S$39m, mainly due to cap rate compression for HK properties. That said, there was a change in valuers and yoy comparison is not apples-to-apples.
  • HK cap rate compressed from 5-5.25% in FY16 to 4.25-4.5% in FY17; China from 7-9% to 5.5-6.75%; and Singapore from 6-7.75% to 6-7.25%. A translation gain of S$68m was also recorded.

Capital management 

  • Gearing stood at 38.5% as at end-FY17 (end-FY16: 39.6%), with all-in cost of 2.3% (flat qoq, yoy) and longer debt tenor of 3.9 years (FY16: 3.5 years). 
  • 81% of total debt is hedged against interest rates while 72% of FY18 distributions have been hedged.

FY18: focus on working China and South Korea assets 

  • For FY18, MLT would focus on China, which has evolved into a two-speed market.
  • Secondary cities such as Wuxi face oversupply. It also aims to ramp up the occupancy of its Pyeongtaek property in South Korea (currently 30%). 
  • On a side note, the ongoing redevelopment project at 76 Pioneer Road, Singapore is on track for completion in 3QFY17. Construction of its redevelopment project at Ouluo Logistics Centre in Shanghai will commence in May 2017.

Expect a hive of investment activities 

  • We expect the investment momentum to continue. The manager is looking at third-party assets in Australia and South Korea. 
  • For ROFR assets, Mapletree Logistics Hub Tsing Yi, Hong Kong has stabilised, with occupancy of 97% currently. 
  • Last, MLT could divest older Singaporean assets with limited redevelopment potential. The group typically pays out divestment gains; and we expect the divestment gain from 20 Old Toh Tuck Road to be distributed over the course of FY18.

Maintain Hold with higher TP 

  • Our FY18-19 DPU dips by 0.1-0.3% on housekeeping assumptions. Our TP rises (to S$1.10) as we roll forward our DDM valuation and cut our Singapore discount rate (in line with sector).
  • However, we keep our Hold call as the stock is trading at 5-year mean. Upside/downside risks hinge on China and Singapore logistics market, and acquisitions.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-04-28
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.10 Up 1.020