Month: September 2012
PLife – CIMB
The dust has settled…what next?
We caught up with management post the listing of IHH. Discussions revealed that management has grown more positive and is gearing up for acquisitions, particularly in Malaysia. A new asset-recycling initiative in Japan strengthens long-term organic growth.
We defer the bulk of balance acquisition projections to 2013, lowering FY12-13 DPU estimates, but peg 2% growth to its Japan portfolio. DDM target price rises on lower 7% disc. rate (7.4% previously) as we align risk premium to peers. The stock now trades at 5% yield and 30% premium over book; downgrade from Outperform to Neutral.
First entry into Malaysia
Having raised Australia and Malaysia as potential markets, management took its maiden step into Malaysia through a small S$6.45m acquisition, completed Aug 2012. We expect further acquisitions of Malaysian hospitals (priced at bite-size amounts of S$10m-30m each, from 3rd party or IHH) and believe total c.S$200m of acquisitions will provide DPU uplift of c.4%. Despite almost S$250m headroom to 45% gearing, we note flexibility for mixed funding as the gap between debt and equity funding has narrowed.
Portfolio still going strong
Outside of acquisitions, we estimate 2-4% minimum DPU growth on CPI-pegged leases of Singapore hospitals (60% of rev) alone. In Japan, management unveiled AEI collaboration with operator, paving the way for further enhancements and a new asset-recycling initiative. We view the latter as a compelling strategy for long-term growth as PLife monetises mature and non-core assets, which are replaced by pipeline assets with more growth potential.
On a portfolio basis, medium- to long-term plans include an increase in exposure to revenue-sharing arrangements to capitalise on strong growth in healthcare markets. With a significant proportion of portfolio on CPI-pegged leases, the shift mitigates future normalisation of CPI rates.
Premium valuations
We like PLife for its defensiveness and remain confident of accretive acquisitions. We see PLife as a good yield-play complement to IHH’s growth story. That said, the market has rewarded the stock with a handsome defensive premium, in our view. At 30% premium over book and yield compression to 5%, we struggle to see significant upside. Earlier-than-expected acquisitions will be a re-rating catalyst.
MLT – Kim Eng
Capital Recycling to Bear Fruit
Capital Recycling. MLT has recently announced that it will be acquiring Hyundai Logistics Centre (HLC) in South Korea at SGD24.3m with an initial NPI yield of 9%. It will also be divesting 30 Woodlands Loop in Singapore (FY3/12 NPI yield-on-cost of 6% according to our estimates) at a sale consideration of SGD15.5m, booking a net disposal again of ~SGD4.96m. Both transactions will complete by 3QFY3/13 and Feb 2013 respectively. Gearing is expected to increase marginally to 37.2% upon completion of both transactions.
Our estimates. HLC is currently leased to E-Land World and ENVICO. We expect the acquisition to complete by Oct 2012 and have factored in modest rental escalations of 1.5% p.a. At existing 1QFY3/13 portfolio yield of 6.5%, we think this acquisition will be yield-accretive. We revise our DPU estimates by 0.3%-0.5% over FY3/13-FY3/16.
Still the highest WALE in the industry. MLT’s assets have increased by almost ninefold since the company listed in July 2005. Given its larger asset base, we expect further scale advantages ahead. MLT also has one of the industry’s highest weighted average lease expiry profiles (six years vis-à-vis AREIT’s four years). Despite having exposure to seven overseas markets, Singapore Japan and South Korea (tier-1 mature markets) constitute 76.3% of revenue and 76.4% of NPI in FY3/13 and 78% of our FY3/13 GAV, which should prove defensive in volatile markets.
Yields can be compressed by another 53bps. From our estimates, the implied cap rate for MLT (based on 1QFY3/13 results) is 6.09%. If we take this cap rate as the floor for FY3/13 DPU yield, we believe yields can still be compressed by another 53 bps from our forecasted FY3/13 DPU of 6.6%. This dovetails neatly with our DDM-derived TP of SGD1.17. We are confident that MLT’s stable assets and rental income resilience will help it navigate the choppy waters ahead. Reiterate BUY.