MLT – DBSV

Ample acquisition firepower

• 4Q14 results slightly above estimates; NAV rises to S$0.97
  
• Gearing falls to 33%; ample firepower to execute on inorganic opportunities
  
• Maintain BUY, TP raised to S$1.20
  

Highlights

Strong end to FY14. Mapletree Logistics Trust (MLT) reported a DPU of 1.89 Scts in 4Q14, bringing its full-year DPU to 7.34 Scts, slightly beating our estimates. Operational performance continues to remain resilient with topline and net property income rising by 5.7% and 4.3% to S$80.1m and S$68.3m respectively. This is despite translation losses from JPY vs SGD, which was mitigated by strong underlying operational performance through: (i) Rental uplifts of c.17% mainly from its Singapore and Hong Kong properties, (ii) Contribution from two recently completed properties and the completion of its development of Mapletree Benoi Logistics Hub (MBLH). Portfolio occupancy levels also maintained steady at 98.3%. Distributable income came in 10.1% higher at S$46.3m, boosted by a lower interest rate of 1.9%.

NAV up by 5.4% to S$0.97; gearing down to 33%. This was mainly driven by higher rental income, with portfolio cap rates remaining stable. A majority of the uplift in NAV came from MBLH in Singapore. Meanwhile, gearing dipped slightly to c.33%.

Our Views

Foreign currency volatility substantially hedged. MLT maintains a conservative strategy to mitigate income volatility by hedging a substantial portion of its foreign-sourced income. As at 4Q14, c.95% of its distributions derived has been hedged. MLT has substantially hedged out its JPY exposures over the next two years, and the impact of a weak JPY/S$ has been mitigated in the immediate term.

Selective on acquisition opportunities. The lower gearing empowers MLT with significant capacity to execute its various development projects or pursue acquisition opportunities. Looking ahead, we see growth coming from: (i) Selective development opportunities within its portfolio (i.e. started on Toh Guan @ total cost of S$107m, target IRR of >7% and to complete by 1HCY16); and (ii) Acquisitions; the manager sees most opportunities in China/Korea/Singapore. In addition, we believe that the manager could tap on its sponsor for opportunities in the medium term. We are maintaining our S$100m acquisition estimates (35% met).

Recommendation

Attractive yields, BUY with S$1.20 TP. We raised our earnings upwards to account for lower–than-expected interest rates. Our TP is raised to S$1.20 as we roll forward our valuations. Maintain BUY.