MLT – CIMB

One property affected; impact not material

Maintain Outperform. MLT’s 14 Japanese assets which contribute 16% to its net property income are largely intact after the 8.9-magnitude earthquake in Japan on Friday. Only one property, Sendai Centre, located in Sendai City, is more severely damaged but its contribution to net property income is less than 1%. MLT’s 96 assets are spread over seven countries, which dilutes its concentration risks in Japan and we do not expect the quake to have a material impact on its operations. No changes to our DPU estimates or DDM-based target price of S$1.05 (discount rate 8.6%). We continue to expect acquisition catalysts and believe the 2.7% price pullback last Friday presents a buying opportunity. MLT trades at 1.06x P/BV and a forward yield of 7%.

The news

8.9-magnitude earthquake in north-eastern Japan. The 8.9-magnitude earthquake struck north-eastern Japan on Friday, triggering a tsunami, an explosion in the Fukushima Daiichi nuclear plant that may lead to nuclear radiation in the area, and fires and power outages in Japan’s north-eastern prefectures. The prefectures worst hit are Aomori, Iwate, Miyagi, Fukushima, Ibaraki and Chiba.

Sendai Centre accounts for 0.6% of NPI. We estimate that Sendai Centre (acquired in 2010 for S$22m) contributes S$1.5m of net property income or about 0.6% of our net property income estimation of S$248m for FY11. Preliminary reports suggest that the building is intact although the full extent of damage can only be known when access into the property is allowed. The manager estimates reinstatement costs of S$9m, although it does not expect the cost of repairs to come up to this amount.

Other buildings in Japan safe. The other 13 Japanese properties are intact with either no damage or minimal damages. The impact on rentals should be mitigated bylong leases on its Japanese assets which are also fully master-leased. Overall, we expect Japanese assets to contribute 20% (up from 16% in 2010) to MLT’s FY11 net property income. In terms of asset value, Japanese assets made up 28% of MLT’s portfolio value of S$3.4bn as at Dec 10.

Valuation and recommendation

Maintain Outperform and target price of S$1.05. MLT’s 96 assets spread over seven countries dilute its concentration risks in Japan and we do not expect the earthquake to have a material impact on its operations. Nonetheless, there could be additional capex going forward for damage repair. We keep our DPU estimates and DDM-based target price of S$1.05 (discount rate 8.6%) pending more developments and clarity from management. Meanwhile, we believe the price pullback last Friday presents a buying opportunity. We continue to expect acquisition catalysts and believe the 2.7% price pullback last Friday presents a buying opportunity. MLT trades at 1.06x P/BV and a forward yield of 7%.