Mapletree Logistics Trust
Sluggish growth expected
UNDERPERFORM - Downgrade | S$1.08 - TP: S$1.08
▊ As the M&A-driven growth tapers off, the earnings outlook for MLT appears less sanguine. More than 90% of its distributable income is hedged, shielding MLT’s earnings from the yen volatility, but this alone is not a compelling reason to buy the stock. MLT’s 2QFY14 results were in line with consensus and our expectations, with this quarter’s DPU accounting for 25% of our full-year forecast and 1HFY14 DPU comprising 50%. Given the lack of growth catalysts (after factoring in the S$150m acquisitions in FY14), we downgrade MLT, based on valuation, to Underperform, with an unchanged DDM-based (discount rate of 8.1%) target price.
Limited future growth
With more than 90% of distributable income hedged, 2QFY14 DPU rose by 5% yoy (after stripping out the distribution from divestment gain). This was mainly attributed to the larger portfolio and positive rental reversion. Although the positive rental reversion persists, the high occupancy rate (98.7%) and relatively high average expiry profile of 4.9 years have caused MLT to become dependent on acquisitions for growth. Management is constantly on the lookout for acquisition targets in China, South Korea, Malaysia and Singapore. However, competition in these countries has driven up asset prices, resulting in fewer yield-accretive acquisitions YTD.
Well positioned to weather interest rate hikes
With net gearing of 34.4%, MLT is well positioned to weather any surge in short-term borrowing costs (less than 20% of its total debt is due for refinancing in any one year). According to our estimates, a 50bp rise in borrowing costs will reduce MLT’s DPU by c.0.6% in FY14 and c.0.3% in FY15. However, given the potential rise in funding costs (both debt and equity), MLT’s ability to execute yield-accretive acquisitions could be restrained.
Lowered to Underperform
Given the lack of significant growth catalysts in the near term, coupled with the potentially higher cost of funds, we downgrade MLT to Underperform, with an unchanged DDM-based target price.
Publish date: 18/10/13