MLT – CIMB

The pros negate the cons

MLT’s 1QFY15 results are in line with our estimate, with DPU for the quarter accounting for 25% of our full-year estimate. Future rental reversion is expected to slow down for the Singapore portfolio as the industrial market here remains under pressure amid further tightening in leasing policies. MLT will continue to grow through acquisitions of quality assets from its sponsor. However, as it is currently trading at 1.2x P/BV while offering an FY15 yield of 6.8% (vs. its peers’ 7.3%), we deem MLT as fairly valued. Maintain Hold with a slightly higher DDM-based (discount rate: 8.1%) TP of S$1.20 as we factor in the acquisition of MZLP and S$25m of potential acquisition in FY16.

Another strong quarter

Higher revenue was mainly the result of i) stronger contribution from Mapletree Benoi Logistics Hub, ii) positive rental reversions of 12% mainly in Hong Kong and Singapore, iii) contribution from the Korea property acquired in 2QFY14, and iv) higher revenue from four Japan properties that completed the installation of solar panels last year.

Acquisition of MZLP

MLT also announced the acquisition of Mapletree Zhengzhou Logistics Park (MZLP) for Rmb205.6m (S$41.1m). This property consists of 4 blocks of single-storey warehouses with 79,000 sq m GFA and is currently 99.2% occupied, with a WALE of 3.3 years. NPI yield for this property (estimated to be acquired by 3QFY15) is expected at 8.0%. Based on our estimates, this acquisition, fully funded via debt with an interest cost of 2.1%, will be mildly yield accretive, boosting DPU by c.0.8%, while the leverage ratio will remain a healthy 34.5%.

More acquisitions

During the analyst briefing, management guided that the Singapore industrial market could undergo short-term pressure, with future positive rental reversion limited to a high single-digit in FY15. Given a strong pipeline of assets from its sponsor, MLT could continue to grow via future acquisitions, with the next target most likely the Yangshan Bonded Logistic Park (45,900 sq m GFA) given the stabilised nature of the asset (86% occupied). Maintain Hold as we wait for more substantial acquisitions to come through.