MLT – CIMB

Ready for rough times

• Upgrade to Outperform from Neutral. MLT’s rights issue earlier this year both addressed refinancing concerns and brought down its asset leverage to a healthy 37% from 56%. We expect new demand for industrial space to ease in tandem with an expected economic downturn. Nonetheless, MLT’s long weighted average lease to expiry of five years should provide visible income streams over the medium term.

• Unchanged target price of S$0.60 (discount rate 9.6%). At our target price, MLT has potential price upside of 42.8%, vs. the potential 15% upside for the STI. We upgrade MLT to Outperform from Neutral based on valuation. We believe that MLT’s rental resilience, healthy leverage and management’s conservatism after the rights issue will yield stable distribution to unitholders despite macroeconomic negatives. Current P/BV of 0.49x and forward yields of 13.2% are in line with SREIT averages. At these levels, MLT appears significantly cheaper than its closest peer A-REIT, whose P/BV is 0.94x with forward yields of 8.8%.