MIT – CIMB

An impressive quarter

MIT’s 3QFY3/14 revenue rose by 9.3% yoy and DPU rose by 8.2% yoy. 9MFY14 DPU was slightly better than expected at 77% of our FY14 forecast due to strong rental reversion and rising occupancy. With further room to grow through rental reversions, BTS projects and AEI, we raise FY14-16 DPU by 2% and we upgrade our rating on MIT to Add from Hold, with a slightly higher DDM-based (discount rate: 8.1%) target price of S$1.52.

Impressive growth

Mapletree Industrial Trust (MIT) has recently reported 3QFY14 revenue of S$75.6m (+9.3% yoy) and DPU of 2.51 Scts (+8.2% yoy), mainly driven by higher rental revenue (ranging between 9.7% and 27.2%) across all property segments and rising occupancy at the flatted factories. The average portfolio occupancy for the quarter was reported at 92.5%, slightly lower than the 93.9% in 2QFY14 due to the increase in leasable area with help from the completion of the K&S Corporate Headquarters in 2QFY14.

More room to grow

Looking ahead, with 26.5% of leases up for renewal in FY15, mainly concentrated in the flatted factories, we expect MIT to achieve positive rental reversion despite the upcoming large supply of industrial space, as these leases are estimated to be c.23% below the average spot rent. In addition, with the built-to-suit (BTS) Equinix project expected to be completed in 2HCY14, coupled with the near-to-completion AEI at Toa Payoh North 1, we expect MIT to continue to grow c.4% in FY15.

Upgrade to Add on bright prospects

Although the amount of debt due to be renewed is relatively high in FY15 (c.30% of total debt), given management’s prudent approach, we remain confident that MIT will most likely take advantage of the current cheap lending environment and refinance these debts prior to their expiry. On the back of slightly better-than-forecast results, coupled with further room to grow both organically and inorganically, we tweak up our earnings estimates by 2% for FY14-16. Currently MIT is trading at 12.6% FY15 NPI yield (vs sector average of 10.7%). On this basis, we upgrade to Add with a higher DDM-based target price of S$1.52.