Mapletree Logistics Trust - CIMB Research 2018-01-23: 3QFY3/18 Active Portfolio Rejuvenation; Acquisition Momentum To Continue

Mapletree Logistics Trust - CIMB Research 2018-01-23: 3QFY3/18: Active Portfolio Rejuvenation; Acquisition Momentum To Continue MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust - 3QFY3/18: Active Portfolio Rejuvenation; Acquisition Momentum To Continue

  • Mapletree Logistics Trust (MLT)'s 9MFY3/18 DPU of 5.681 Scts (+1.8%) was in line with consensus and our expectations, at 73% of our full-year estimate. 3QFY18 DPU of 1.907 was at 24%.
  • 3QFY18 was driven by stable organic performance and fresh contribution from Tsing Yi. Occupancy improved 40bp q-o-q to 96.2%; +2% rental reversion recorded.
  • The manager is actively repositioning its assets (i.e. Shatin No. 3). It targets a 5% yield on cost for the asset in the next 9-12 months, following AEI (cost of c.HK$30m).
  • Guided for active acquisition pipeline with sizeable M&As likely in next 3-6 months.
  • Looking past valuations, the bottom-up story for MLT is constructive. We see continued unit price performance and upgrade the stock from Hold to ADD.

Stable organic performance and fresh contribution from Tsing Yi 

  • Mapletree Logistics Trust (MLT)'s 3QFY18 DPU grew 2% y-o-y to 1.907 Scts due to higher contribution from existing properties in HK and fresh contribution from Mapletree Logistics Hub Tsing Yi. 
  • Portfolio occupancy improved 40bp q-o-q to 96.2% from higher occupancies in HK, South Korea and Malaysia. 
  • The portfolio achieved an average +2% rental reversion for the quarter, mainly contributed by HK (+3%) and Vietnam (+5%). 
  • Overall growth was partially offset by three divestments in 1HFY18 (Zama Centre, Shirishi Centre and 4 Toh Tuck Link).

Occupancy by country 

  • HK registered 0.3%-pt q-o-q improvement to 99.8% in the quarter; 
  • South Korea +8.8% pts q-o-q to 93.2% as occupancy for the Pyeongtaek property improved to 83% from 55% in 2QFY18; 
  • Malaysia +1.4% pts q-o-q to 100%. 
  • Japan, Australia and Vietnam maintained full occupancy. 
  • Singapore occupancy declined 1.5% pts q-o-q after taking into account the newly redeveloped 76 Pioneer Road; excluding which, occupancy would have been 95.1%. 
  • China occupancy decreased 0.7% pt q-o-q to 95.7% on frictional vacancies.

Active portfolio rejuvenation 

  • Redevelopment of 76 Pioneer Road was completed in Nov 2017 with committed occupancy of 55%; the manager aims for full occupancy by end-2018. Redevelopment of Phase 1 Ouluo Logistics Centre, China is scheduled for completion in 2QFY19. 
  • Post 3QFY18, MLT completed divestment of Senai-UPS, Malaysia for S$9.2m and announced the acquisition of remaining 38% of Shatin No.3, HK for c.S$104m. With full ownership of Shatin, the manager sees AEI potential and subsequent revenue growth from the asset.

Acquisition momentum could continue 

  • There could be sizeable acquisitions in the next 3-6 months, including sponsor’s assets in China and Japan, buy-out of the remaining interest in MLT’s other strata-titled HK properties and third-party deals in Australia. 
  • On funding, the manager expects gearing to increase to 39% (3QFY18: 37.8%) after the completion of Shatin (expected in Jan 2018). As such, we believe future acquisitions could be funded by the issuance of new perpetual securities and capital recycling (i.e. divestment gains from 7 Tai Seng).

Better late than never; upgrade to ADD 

  • Our Hold rating on MLT was premised on valuations. Looking past valuations, MLT’s bottom-up story is constructive, with existing portfolio stabilising and growth prospects from re-development/AEIs. Further upside could come from unabated acquisition momentum. 
  • We upgrade the stock to ADD and raise our DDM-Target Price (to S$1.43) as we roll-forward our valuations and input higher LTG and COE. We decrease our FY18-20F DPU on lower revenue assumptions. 
  • Downside risk is a turn in investor sentiment.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-01-23
CIMB Research SGX Stock Analyst Report ADD Upgrade HOLD 1.43 Up 1.210