Mapletree Industrial Trust - OCBC Investment 2017-07-26: Downgrade To HOLD On Valuation Grounds

Mapletree Industrial Trust - OCBC Investment 2017-07-26: Downgrade To HOLD On Valuation Grounds MAPLETREE INDUSTRIAL TRUST ME8U.SI

Mapletree Industrial Trust - Downgrade To HOLD On Valuation Grounds

  • 1QFY18 DPU +2.5% YoY.
  • Improvement in NPI margin.
  • Upside likely limited.

1QFY18 results within our expectations 

  • Mapletree Industrial Trust (MIT) reported its 1QFY18 results which met our expectations.
  • Gross revenue and NPI grew 5.6% and 6.9% YoY to S$88.8m and S$68.2m, respectively, with the latter forming 25.2% of our FY18 forecast. This was driven largely by revenue contribution from Phase One of the built-to-suit project for Hewlett-Packard Singapore and higher NPI margins (+0.9 ppt YoY to 76.8%) across all business segments with the exception of Hi-Tech Buildings. 
  • DPU of 2.92 S cents represented an increase of 2.5% YoY and constituted 24.4% of our full-year forecast.

Some challenges seen 

  • MIT’s average portfolio passing rental rate continued to exhibit resilience, inching up 0.5% QoQ to S$1.95 psf/month in 1QFY18. However, occupancy saw a slight dip from 93.1% (as at end-FY17) to 92.6%, with the drag coming from its Flatted Factories and Hi-Tech Buildings segments. 
  • Retention rate for the latter came in at only 52.0% for the quarter, versus 74.8% for MIT’s entire portfolio. 
  • In terms of rental reversions for renewal leases, only Flatted Factories had an uplift (+0.6%), while Business Park Buildings, Hi-Tech Buildings and StackUp/Ramp-Up Buildings saw negative rental reversions of 4.5%, 1.9% and 1.5%, respectively.

Downgrade to HOLD 

  • MIT recently completed the divestment of the 65 Tech Park Crescent property for S$17.7m, which was transacted at an attractive 34% premium over its acquisition price and slightly above its last valuation of S$17.6m. We factor this into our model, and also incorporate lower occupancy assumptions for Business Park Buildings in FY19 (largely due to impact from Johnson & Johnson Pte. Ltd’s pre-termination). 
  • Our FY18 and FY19 DPU forecasts are trimmed by 0.3% and 2.6%, respectively, resulting in a revised fair value estimate of S$1.92 (previously S$1.93). 
  • Given that MIT’s share price has appreciated 14.3% YTD and 20.1% since our upgrade on 24 Nov last year, we believe upside potential is now limited at this juncture. Hence, we downgrade MIT from ‘Buy’ to HOLD on valuation grounds
  • Our projected FY18F distribution yield of 6.3% comes in approximately 1.5 standard deviations below its 5-year mean of 6.8%.

Wong Teck Ching Andy CFA OCBC Investment | 2017-07-26
OCBC Investment SGX Stock Analyst Report HOLD Downgrade BUY 1.92 Down 1.930