Mapletree Industrial Trust - Maybank Kim Eng 2018-07-04: Hi-Tech Momentum

Mapletree Industrial Trust - Maybank Kim Eng 2018-07-04: Hi-tech Momentum MAPLETREE INDUSTRIAL TRUST SGX: ME8U

Mapletree Industrial Trust - Hi-tech Momentum


Buying opportunity after pull-back; DPU fine-tuned

  • Mapletree Industrial Trust (MINT)’s share price have pulled back along with the broader market and in partial response to rising interest rates. Still, we believe fundamentals are intact, backed by stronger leasing demand and a more resilient portfolio following its hi-tech asset investments and US diversification in 4Q 2017.
  • We also believe low gearing, debt headroom of SGD700m and clear acquisition-growth potential can provide upside to our 3-year 6.3% DPU CAGR forecast.
  • Following the release of its annual report, we adjust our DPU for the latest asset-level details and revenue updates. We also incorporate the finalisation of MINT’s 7 Tai Seng Drive acquisition on 27 Jun.
  • Our DDM-based Target Price remains at SGD2.25 (WACC 7.2%, LTG 1.5%). BUY.



Industrial sector likely bottomed; hi-tech on the rise

  • Singapore’s industrial-sector recovery is underway, supported by positive macros and easing supply pressures. Leasing in Apr / May 2018 jumped 18.7% y-o-y, maintaining its double-digit growth since 3Q17 amid more optimistic expectations by the manufacturing sector. io.
  • Meanwhile, Mapletree Industrial Trust’s completion of its 30A Kallang Place AEI, development of a BTS data centre at Sunview Way and conclusion of its 7 Tai Seng Drive acquisition should lift its hi-tech contributions from 31% to 34% of Singapore AUM.


Balance sheet backing

  • Mapletree Industrial Trust’s portfolio has strengthened after its first overseas investment in 4Q17.
  • Its US data-centre JV could potentially double its hi-tech contributions from 21.8% of NPI in FY17 to 40.2% by FY21E. US data-centre leasing demand is expected to grow by an 8.7% CAGR in 2017- 2022E vs a supply CAGR of only 6.8% (source: 451 Research). About 24% of its portfolio by land area is on freehold land while WALE has lengthened from 3.6 to 3.8 years.
  • We see further acquisition potential, given its low 33.1% gearing vs history and peers. The deployment of an estimated SGD700m of debt headroom could add 9-12% to our DPU.


Swing Factors


Upside

  • Earlier-than-expected pick-up in leasing demand driving improvement in occupancy.
  • Better-than-anticipated rental reversion trend.
  • Accretive acquisitions.


Downside

  • Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.
     





Chua Su Tye Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-07-04
SGX Stock Analyst Report BUY Maintain BUY 2.250 Same 2.250



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