MLT – JPM

3Q09 results – flat-lining – ALERT

• Mapletree announced 3Q09 results, with DPU of S$0.0148/unit, flat Q/Q but higher than J.P. Morgan estimates on the back of tax savings as a result of government tax rebates in Malaysia and China. Gearing for the trust as of 30 Sep 09 is 38.1%, book value stood at S$0.88/unit. Stock will trade ex-3Q09 distribution on 28 Oct 09.

• Operations still under pressure: Net property income declined 3.5% Q/Q as a result of depreciation of the HK$ and Rmb, an increase in vacancy rates in Hong Kong and China assets, and a pre-termination of a lease in Singapore. The occupancy rate declined 1.2% Q/Q, with the average reversion rate flat compared to previous prevailing rentals due to the trust’s priority in retaining tenants. We expect 4Q09 results to flat-line at best.

• No change to trust’s strategy: Management reiterated its “yield +growth” strategy during the conference call and indicated that it was in an advance stage of evaluating accretive third-party acquisition opportunities in Singapore, Japan, and Hong Kong. Funding for potential acquisitions will still be through a mix of debt and equity. In addition, management highlighted that approximately S$300 million of the sponsor’s development pipeline has been completed or is nearing completion, and the trust will tap into the pipeline when appropriate.

• Management execution is the key to share price performance: The trust has this year moved to a “new strategy”, in which management will try to bundle acquisitions together with permanent/stable funding structure being put in place at the same time. While we believe this is the right shift in strategy for MLT, it is difficult in execution given the much smaller deal size for logistic assets. A demonstration of a good execution of equity fund raisings together with yield-accretive acquisitions would be necessary, in our view, before the stock could rerate. We therefore maintain our Neutral rating on the stock.