Thursday, July 11, 2013

Mapletree Industrial Trust : Increasingly attractive risk-reward (CS)

Mapletree Industrial Trust
Upgrade to OUTPERFORM
Price (09 Jul 13, S$) 1.32
TP (prev. TP S$) 1.67 (1.70)
Increasingly attractive risk-reward

● Among the industrial REITs, MINT has been the third worst performer, down 16% since end-April. We believe valuations are looking attractive. We upgrade MINT from Neutral to OUTPERFORM after stress-testing our DDM and rent assumptions.

● Vacancy concerns at Signature is not as bad as the market perceives, with the major tenant, CS (4.5% of gross rental income), vacating in 2H13. About 10% of the space has already been back-filled.


● While Iskandar is seen as a potential threat to industrial landlords, we note that it may take perhaps another five years before the infrastructure and the ease of doing business get up to a level where they become a meaningful threat. For now, there is no meaningful competition in the flatted factory space (62% of MINT’s NPI).

● Even after trimming our FY14-16E DPU by 0.3-1.9% to account for vacancy, our new DDM of S$1.67 (from S$1.70) still offers 27% potential upside. We estimate that current share price implies a further 20% decline (on top of our existing assumptions) in FY14 rents. Meanwhile, stress-testing our DDM for risk-free rates reveals that current share price is factoring a +200 bp in cost of equity.

Upgrade MINT from a Neutral to an OUTPERFORM
Among the industrial REITs, MINT has been the third worst performer since the end of April, falling 16% and underperforming the STI by 10%. We believe valuations are starting to look attractive after MINT’s recent underperformance, supported by the conclusions of our stress-testing of DDM assumptions and rental growth outlook.

Vacancy concerns at Signature not as bad as perceived
One of the key investor concerns for MINT is the potential vacancy risk when one of its anchor tenants in Signature, Credit Suisse’s lease ends in June. CS accounts for 4.5% of gross rental income as of Mar- 13, but we estimate Signature will account for only 4.1% of FY14’s NPI. Business parks as a whole make up 16% of FY14 NPI. Trimming FY14-16 DPU by 0.3-1.9% to adjust for the vacancy (we understand about 10% of the space has been back-filled) and our new DDM is S$1.67 (3% risk free, 7.5% cost of equity).

Iskandar not quite a near-term threat, yet
Iskandar has been perceived as a rising competition to industrial landlords. However, we note that many companies which have chosen to move there were not of the “multi-user” factory type yet, and it may take perhaps another five years before the infrastructure and the ease of doing business get up to a level where it becomes a viable threat, but for now, especially in the flatted factory space (62% of MINT’s NPI) where the average tenant size is between 2,000 sq ft and 3,000 sq ft, there is not much meaningful competition in Iskandar. Sector fundamentals remain supported with system occupancy for factories at 90%+.

We estimate MINT’s share price implies a further ~20% decline (on top of existing assumptions) in FY14 rents. Meanwhile, stress-testing our DDM for risk-free rates reveals that current share price is factoring a +200 bp in cost of equity.




Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 11/07/13

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