MLT – DBSV

Steady growth profile

• Stable 3QFY13 result

• Resilient portfolio; 17% positive rental reversion led by robust demand in Singapore and Hong Kong

• Future acquisitions are re-rating catalysts; BUY, S$1.22 TP offers 12% total return

Highlights

3QFY13 result in line with expectations. Gross revenues grew 7.7% y-o-y to S$77.4m and net property income 9.7% to S$67.5m. This was attributed to contribution from a larger portfolio (7 Japan properties, 4 in Korea and Malaysia), which also offset lost income from two properties in Iwatsuki Centre, Japan, that were destroyed by a fire in 2011. Organic growth remained fairly modest at 0.5% y-o-y. NPI margin inched up to 87.3%, driven by savings in property maintenance expenses in Singapore. Distributable income inched up 1.1% y-o-y to S$41.8m (after distributions to perpetual securities holders), translating into 1.72 Scts DPU (+1.2% y-o-y); the increment would have been higher at 3% if we exclude divestment gains paid out a year ago.

Our View

Resilient portfolio; Singapore and Hong Kong seeing strong rental reversions. Portfolio occupancy remained healthy at 99.2% and the trust continues to record positive rental reversions to the tune of 17%, largely from Hong Kong and Singapore. Looking ahead, given the relatively sticky nature of warehouse space and only 14.7% of its income up for renewal in the coming financial year, we expect reversions to still remain positive and thus earnings should continue to remain firm.

Future acquisitions could re-rate stock. Recently acquired Wuxi Logistics Hub (@ 8% yield) will start to contribute positively in the coming quarter. And with an implied yield of 5.8%, we expect MLT to remain on the hunt for more acquisitions regionally with a focus on growth regions like China, South Korea, Malaysia and even Australia (sponsor or 3rd party). We continue to believe that future acquisitions will occur in the immediate term and will re-rate the stock.

Recommendation

Maintain BUY rating and S$1.22 TP. We continue to like MLT for its resilient earnings and a visible pipeline of acquisitions that when acquired is likely to lead to higher distributions.