MLT – DBSV

Moving into growth markets

• 2Q13 results in line; operationally outlook to remain stable with minimal renewals in 2HFY13

• Acquisitions a likely catalyst, we have assumed S$200m in our numbers for FY14

• Maintain BUY, TP raised to S$1.22

Highlights

Stable results in 2Q13. Gross revenues and net property income grew 13.4% and 14.6% y-o-y to S$77.5m and S$67.5m respectively. The strong performance was attributable to contributions from its new acquisitions (7 Japanese properties, 4 in Korea and Malaysia), offsetting the loss of income from 1 building in Japan which was destroyed by a fire in 2011. Distributable income rose 12.8% y-o-y to c$41.3m (after accounting for S$4.7m to perpetual securities holders), translating to a DPU of 1.71 Scts (+1.2% y-o-y, +1% q-o-q). Performance on a sequential basis remained stable.

Operations looking stable. The group has successfully renewed 67% of the 12.7% of leases (by NLA) due in FY13, amounting to 228k sqm, securing average rental hikes of c8%. Portfolio occupancy levels saw an uptick of 0.2ppts to 99.2%, from improving demand in Singapore, Hong Kong and China. Looking ahead, given the relatively sticky nature of warehouse space and with only 4.2% of leases (by NLA) left to be renewed for the remainder of FY13, we expect MLT to continue delivering sustained results.

Distribution reinvestment plan. MLT has also instituted a DRP for this quarter, which we see as a positive development, subjected to takeup, funds can be used to re-deploy for capex/AEIs which are expected to be yield enhancing.

Our View

Capital Re-cycling, further acquisitions to be re-rating catalysts. The completion of the acquisition of Hyundai Logistics Centre in Korea will start contributing positively in 3Q13 and the trust is understood to be in negotiations with a major Japanese 3PL for a built-to-suit development in Iwatsuki Center (destroyed by fire previously) and is expected to return yields higher than its Japan portfolio.

Management continues to look for growth opportunities and targets higher growth countries (China, South Korea) and new markets like Indonesia. In addition, MLT has a visible pipeline worth a potential S$400m that could be executed on in the medium term. We have assumed S$200m worth of asset acquisitions (funded by 40%/60% debt/equity ratio) in our FY14F estimates, raising our estimates slightly by c2%

Recommendation

BUY call maintained, TP S$1.22. Given the availability of a visible pipeline and MLT trading at implied yields of 6.4%, we believe that acquisitions are a likely feature going forward and a further re-rating catalyst. Our TP is adjusted to S$1.22 as we now assume S$200m worth of acquisitions (nil previously) and we have also tweaked our rental growth rates for Singapore/Hong Kong which has continued to rise ahead of expectations. Maintain BUY.