SELL (from HOLD)
Share price: SGD1.045
Target price: SGD1.00 (from SGD1.13)
In Search Of Growth Drivers
Capital value at risk. We see industrial REITs facing major downside risks from the impending hike in interest rates and possible recalibration of over-inflated property prices – both of which can drag down NAV. The physical capital values of industrial properties have doubled in the past four years compared with only a 20-50% rise in the other segments. The price-rental mismatch has also proven to be the most staggering. With rentals currently are at an all-time high from 2008 peaks, we anticipate slower growth in FY14.
Lingering headwinds. Other challenges include a fragile global macroeconomic outlook and ample supply in the pipeline. Iskandar Malaysia will also pose competition in the medium term, especially for lower value-added industrial activities within Singapore. Empirical evidence suggests that warehouse rents and asset values in Singapore are, respectively, 2.5x and 8.5x higher than in Iskandar Malaysia.
Limited DPU growth. We forecast DPU CAGR of 2% over FY3/13-16F, which is unexciting in our view. The sustained weakness in the yen – down 13% YTD – vis-à-vis the Singapore dollar is another concern, as the Japan portfolio made up about 22-26% of MLT’s total revenue. Moreover, five out its top 10 tenants are Japanese corporations, contributing ~12% of 2QFY3/14 gross revenue. However, management maintained that the impact of the yen on DPU will be offset by its existing forex hedges – previously 85% hedged in FY3/14 and more than 50% hedged in FY3/15F-16F.
Acquisitions in FY3/14 yet to materialise. Management has admitted that growth was lethargic in FY3/13 and said it would be more aggressive on the acquisition front in FY3/14, targeting sponsor injections such as Mapletree Shah Alam Logistics Park in Malaysia (almost fully leased) and Mapletree Zhengzhou International Logistics Park in China. Both acquisitions are likely to cost ~SGD80m with 7-8% NPI yield-on-cost. MLT also cited possible acquisitions in China/Korea/Malaysia/Singapore and BTS initiatives in Singapore/China. Its redevelopment project at 21 Benoi Sector is on track for completion in 3QFY3/14 and is almost fully pre-committed. Until then, we downgrade MLT from HOLD to SELL in view of capital value risk, the high valuation it is currently trading at (1.13x P/BV), and the absence of material catalysts. We believe risk is further skewed to the downside for MLT. Our DDM-derived TP works out to SGD1.00.
Publish date: 06/12/13