MLT – DBSV

On growth path

At a Glance

• Portfolio strength through stability and diversity

• Evaluating BTS opportunities

• Maintain Buy, TP $0.93

Comment on Results

Results meet street estimates. MLT reported 1Q10 results that were in line. Gross revenue fell 3.5% yoy (+1.2% qoq) to $51.4m while NPI dipped a smaller 0.9% yoy (+1.9% qoq) to $45.8m thanks to successful cost management initiatives. Distribution income grew 7.8% yoy to $30.8m (DPU 1.5cts) thanks to a 25% yoy reduction in interest cost as the group refinanced its borrowings at lower rates. During the quarter, MLT recognized $13.1m of revaluation gain from one of its properties (0.4% of portfolio value), which resulted in book NAV rising to $0.87/unit.

Resilient portfolio. Occupancy at MLT’s portfolio remained steady at 98% supported by a diversified and stable tenant base and long leases. According to management, rental outlook for 2H10 has turned slightly upbeat with increased enquiries for space on the back of economic recovery. This would enable the group to benefit with a remaining 12.5% of NLA to be renewed this year, mostly in HK and Spore.

Acquisitions and new forays into BTS opportunities. One of MLT’s much touted growth drivers is via acquisitions. Apart from third party targets, it can also tap its sponsor’s pipeline in Vietnam, China and Malaysia. Recent tie-up between sponsor and Itochu to develop US$300-500m of logistics projects over the next 3-5 years would further expand this pipeline. MLT’s current balance sheet is healthy with gearing of 38.6% and interest cover of 6.2x.

In addition, MLT is currently looking to venture into built-to-suit (BTS) activities both in Singapore and overseas. It can undertake up to $300m of development properties based on its current $3bn portfolio value. While we see this as taking development risk, this will likely be compensated by better returns on cost.

Recommendation

Buy, TP maintained at $0.93. Despite the recent share price rise, MLT continues to offer investors attractive prospective yield of 6.9-7.3%, backed by secure income streams. In addition, growth drivers such as new acquisitions remain highly visible from its sponsor while potential ventures into the built-to-suit arena are likely to provide further upside to our valuations in the medium term. Our current estimates have factored in only $150m worth of new buys in FY10.