MLT – CIMB
Competition heating up
• Beat expectations; but maintain Underperform. FY09 results exceeded consensus and our expectations (107% of our estimate). We change our assumptions to reflect acquisitions requiring debt and equity funding, and lower our cost-of-debt assumptions. Our FY10-11 DPU estimates fall by 3-4%. We also introduce FY12 estimates. Following our adjustments, our DDM-target price falls to S$0.74 from S$0.79 (discount rate 8.6%). Maintain Underperform as we expect competition in the industrial space to intensify in 2010. Possible re-rating catalysts may come from the acquisition of significantly accretive assets.
• Full-year distributable income of S$117.9m and DPU of 6.02cts exceeded Street and our expectations, though EBITDA was below our expectations (93% of FY09 forecast). This was attributed to the inclusion of an exceptional S$2.5m consideration from Prima Limited for an extension of its lease along Keppel Road in distributable income. Full-year net property income of S$180.8m was up 12% yoy, mainly on contributions from 11 acquisitions completed in 2008. Only one property (7 Penjuru Close) was acquired in 2009. Portfolio occupancy improved to 98.1% from 97.1% in the last quarter.
• Asset revaluation. MLT’s 82 properties were valued at S$2.9bn as at Dec 09. This was down a marginal S$16.5m, or 0.6% of its asset size. Its book value dipped to S$0.85/unit from S$0.89/unit in Dec 09.
• Expect acquisitions and intensifying competition in 2010. Management is ready to acquire this year after a hiatus in 2008. Last November, we estimated S$200m worth of acquisitions for 2009-10. Only S$43m was used to acquire 7 Penjuru Close. We bring forward the remainder S$157m to FY10, and now assume a 60:40 debt to equity ratio. We also lower our cost-of-debt assumption to 3% (from 3.5%) given improved credit conditions and MLT’s unencumbered balance sheet. Our DPU estimates fall by 3-4% for FY10-11. Both the business and credit environment has improved for the logistics and warehousing sector, auguring well for MLT’s properties. However, the same should also attract more competition from listed and unlisted property funds and trusts. We believe acquiring overseas assets could be more accretive than acquiring in Singapore.