Mapletree Logistics Trust - OCBC Investment 2018-06-21: Down But Not Out

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MAPLETREE LOGISTICS TRUST SGX: M44U

Mapletree Logistics Trust - Down But Not Out

• Escalating trade tensions.
• Increased exposure to China.
• Limited operational impact.

Rising trade tensions have routed financial markets

• The ongoing trade friction between the US and China has undoubtedly spooked the equity markets and also casts a pall over the outlook of global trade and correspondingly logistics-related securities. We note that Mapletree Logistics Trust (MLT) derived 6.3% of its NPI from China in FY18.

Completed acquisition of 50% interest in portfolio of assets in China

• Mapletree Logistics Trust (MLT) recently completed the acquisition of a 50% interest in each of 11 logistics properties in China on 6 Jun for a total acquisition cost of RMB1.0b (~S$213.9m). Its sponsor Mapletree Investments Pte. Ltd. holds the remaining 50% stake. Within this portfolio, JD.com and Cainiao Smart Logistics Network Limited, the logistics arm of Alibaba, count as the largest tenants, contributing 20.8% and 19.3% of the portfolio’s gross revenue, respectively.
• Following this acquisition, China is expected to contribute 9% of its pro forma portfolio valuation and 11% of its pro forma FY18 NPI, as compared to 5% and 6% previously, respectively. 
• While this may raise some concerns over MLT’s increased exposure to China amid the current trade spat, we believe a significant portion of its underlying end-user revenue from China is derived domestically due to the fast growing e-commerce sector. Hence we see limited impact on MLT’s earnings. For example, JD.com’s business is primarily conducted in China.
• After taking into account the aforementioned acquisition and recent private placement exercise (gross proceeds of S$220m) to finance this purchase, we trim our FY19F DPU forecast by 0.9% and FY20F forecast by 0.8%.

Lower Fair Value on higher discount rate assumption

• E-commerce sales in China are projected to increase at a CAGR of 16.0% from US$449b in 2017 to US$813b in 2021, according to Euromonitor and Colliers International. However, given the uncertainties and negative sentiment surrounding the ongoing trade tensions, we adopt a more conservative stance by raising our discount rate assumption on MLT from 7.8% to 8.2%. This consequently lowers our fair value estimate from S$1.44 to S$1.34.

Wong Teck Ching Andy CFA OCBC Investment | https://www.iocbc.com/ 2018-06-21

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