Mapletree Logistics Trust - UOB Kay Hian 2018-10-24: 2QFY19 In Line; Portfolio Rejuvenation In Progress

MAPLETREE LOGISTICS TRUST (SGX:M44U) | SGinvestors.io MAPLETREE LOGISTICS TRUST (SGX:M44U)

Mapletree Logistics Trust - 2QFY19: In Line; Portfolio Rejuvenation In Progress

  • Mapletree Logistics Trust's 1HFY19 DPU of 3.915 S cents (+3.7% y-o-y) is in line with expectations, accounting for 51.4% of our full-year estimate.
  • Management has flagged acquisition interest in Vietnam and Malaysia. They also highlighted risks from the escalation of trade tensions and rising interest rates, and taken steps on hedging the income stream and rates.
  • Maintain HOLD with target price of S$1.36. Entry price: S$1.15.



2QFY19 RESULTS


Results in line with expectations.

  • Mapletree Logistics Trust (MLT) posted a 2QFY19 DPU of 1.958 S cents, up 3.8% y-o-y.
  • 2QFY19 saw gross revenue and net property income increase by a respective 13.8% and 14.6%, driven by organic growth from the existing portfolio and contribution from two recent acquisitions in Hong Kong (but partially offset by the absence of contribution from four divestments completed in FY18 and one divestment in 1QFY19).
  • 2QFY19 distributable income also grew by 33%, bolstered by contribution from a 50% interest in 11 properties in China (acquired in Jun 18).
  • The results are in line with expectations, with 1HFY19 DPU representing 51.4% of our full-year estimates.



STOCK IMPACT


Overall occupancy increased to 6% in 2QFY19

  • .. (+19ppt q-o-q), due to higher Singapore which included the CWT of a single user asset (SUA) for a Changi as South Korea (from 93.8% to China (ie from 91.0% to Vietnam (ie from 98.5% to 100%).
  • Japan, Australia, and Malaysian portfolios maintained Hong Kong declined (from 100% downtime No. 4 and Grandtech Centre.

Portfolio rental reversions were up 1.3% q-o-q

  • .. , attributable mainly to Hong Kong (+4%) and Vietnam (+7.8%). Other geographies also as Singapore (+0.5%), South Korea (+2.3%), China (+1.5%), but by Malaysia (-5.7%).
  • Management due to rent adjustments for its Alam. The area saw a large property while those at its sponsor are c.60%).

Acquisitions and divestments on the horizon.

  • Management flagged interest in acquiring assets in Vietnam (but these are likely to be small assets) without their sponsor, as well as in Malaysia in the near term. Although management is also considering Indonesia (together with their sponsor), they noted the challenge of foreign ownership (and the need to find local partners).
  • MLT is also looking to make divestments in Japan, Malaysia, Korea, and potentially some Singapore assets (ie specifically those with the lowest potential for rental reversion).

Gearing increased to 38.1% in 2QFY19 (vs 36.4% in 1QFY19).

  • Total debt outstanding increased by S$463m, mainly due to loan drawn to partially fund the acquisition of five properties in Singapore, redevelopment and working capital purposes, as well as higher net translated foreign currency debt.

Proactive leasing efforts resulting in well-spread-out lease expiry profile

  • .. with 12.8% and 20.7% of total leases by NLA expiring in FY19 and FY20 respectively. Out of these, SUA leases account for 1.3% and 5.5% of the leases due in FY19 and FY20 respectively.

Cautious outlook.

  • Escalating trade tensions, volatility in currencies, and rising interest rates continue to weigh on business sentiment and could impact investment and trade, and dampen global growth. Management is carefully monitoring the evolving environment, but noted that their assets are largely used to support consumption and leasing activities have been stable to date.
  • In order to mitigate the impact of interest rate and forex fluctuations, around 80% of MLT's total debt has been hedged on fixed rates, and 84% of income stream for FY18/19 (vs 73% last quarter) has been hedged.

Singapore industrial rents bottomed on the back of improved occupancies.

  • According to CBRE, islandwide warehouse rents bottomed out after 12 consecutive quarters of decline, while factory rents stayed flat after five consecutive quarters of decline. They noted that occupier activities came from medical technology and petrochemicals sectors (in line with the government's goal of attracting more higher value-added manufacturing to Singapore), as well as increase in demand for storage space (driven by a build-up of inventory and growing gap between higher output and lower exports).
  • Outlook for industrial rents continue to be steady for rest of 2018, and has potential to grow in 2019.


EARNINGS REVISION/RISK

  • We have raised our FY19F to FY21 DPU by 38%, mainly factoring in higher rent reversions and occupancies across its Singapore, Hong Kong and China properties.


VALUATION/RECOMMENDATION


Maintain HOLD

  • Maintain HOLD with an unchanged target price of S$1.36, as we factor in a higher required rate of return.
  • Our valuation is based on DDM (required rate of return: 7.2%, terminal growth: 2.0%). Entry price: S$1.15.


SHARE PRICE CATALYST

  • Positive news flow on industrial rents and occupancy.





Loke Peihao UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-10-24
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.360 SAME 1.360



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