MIT – CIMB

Just ambling along

While we like MINT for its stable portfolio, we think organic growth could moderate as passing rents for its previously under-rented flatted factories catches up with renewal rents and the market. Higher asset leverage could also limit inorganic growth through debt-funding.

1QFY13 DPU at 26% of our FY13 number was in line with both our and street estimates. We lower DPUs on rental and interest cost adjustments, but raise our DDM target price with a lower discount rate of 8.1% (prev. 8.6%). We downgrade MINT to Neutral from Outperform on limited upside.

NPI margin boost

1QFY13 NPI was up 26% yoy, thanks to contributions from acquisitions, positive rental reversions and margin improvements. Qoq, NPI was up by 5% mainly due to higher NPI margin of 72.3% (vs. 4QFY12’s 69.4% and FY12’s 69.5%) on lower operating capital expenses offset by higher utilities and marketing expenses. We expect margins to moderate in coming quarters.

Moderation in reversions

Rental reversions remained strong: Flatted factories at +22%, Business parks at +9%, Stack-up/Ramp-up buildings at +32% and Warehouses at +15% over preceding leases. But there was some moderation in rental reversions vs. 4Q12’s +27% for flatted factories on attempts to lengthen lease tenures for targeted tenants, and tapering off in growth. Occupancy was flat at 94.9% as lower warehouse occupancy (with the departure of a major tenant, 20-30% back-filled) was offset by higher flatted factories’ occupancy. Business parks occupancy was flat at 91%.

Growth priced in

MINT’s performance should remain stable. However, we believe that the current valuation at 1.2x P/BV has priced in growth potential, particularly with organic growth expected to moderate as passing rents of its under-rented portfolio catches up with the market, and with likely increased resistance to rental increases in the current climate. Asset leverage of 38% or 39%, factoring in recent built-to-suit development, could also limit inorganic growth through debt funding, in our view.