DBS: Mapletree Logistics Trust TP$1.59

Mapletree Logistics Trust DBS @ S$1.22 (09 Oct 2007)

- Buy S$1.22 STI : 3,820.31
- Price Target : 12-Month S$1.59

- Reason for Report : Post roadshow update
- Potential Catalyst: Strong acquisition pipeline
- ANALYST: Zy Sew Ho +65 6398 7961
- zysew@dbsvickers.com

- Major Shareholders: Meranti Investments (%) 15.2, Mapletree Logistics (%) 7.4, Mangrove Pte Ltd (%) 7.4

- Free Float (%) 70.0
- Mkt. Cap (S$m/US$m) 1,352 / 918
- Earnings Rev (%): 2008: - 2009: -

- Consensus EPS (S cts): 2008: 6.8 2009: 7.2
- Variance vs Cons (%): 2008: (2.9) 2009: -
- Sector : REITS

- Principal Business: Real estate investment trust with a portfolio of 73 properties in the logistics sector.

- Updates from roadshow - Story: Mapletree Logistics Trust (MLT) was on a roadshow with us to Hong Kong and Europe for the period 24 to 28 Sep 07.

- Point: Investors like MLT’s growth strategy and plans to penetrate into emerging markets such as Vietnam and India. During the discussions, the management also addressed general concerns raised, which include the rationale for expansion into Japan (where the rental escalation and yields are not attractive), financing issues in the face of credit crunch and high gearing ratio.

- Relevance: We continue to like MLT for its strong acquisition pipeline and pan-Asian platform. Maintain Buy with target price of S$1.59 based on DCF Valuation. - Pipeline from the Sponsor. A visible pipeline of 10 development projects (six in China, one in Malaysia and three in Vietnam) worth a total of S$846m is expected to come from the Sponsor. Construction of the Yangshan Bonded Logistics Park, China (approximately S$37m) and Mapletree Logistics Centre, Vietnam (approximately S$10m) are completed and these two properties are expected to be injected into MLT’s portfolio within the next six months. Moving forward, 10-20% of the annual target of S$1bn is expected to come from the Sponsor while the remaining pipeline will come from third-party acquisitions.

- Growth strategy. MLT’s strong acquisitions have been driving its growth and to date, it has a total portfolio of 74 properties worth S$2.4bn. The pipeline from China, Vietnam and India are expected to come from the Sponsor (who will undertake the Greenfield developments), as ready assets are not readily available for acquisitions. The Sponsor currently has a pipeline of six and three development projects in China and Vietnam respectively. However, as the Sponsor has no development projects in India, we could only expect the assets from India to be included in MLT’s portfolio from 2009. In 2008, we expect MLT to grow its Tier 1 assets (i.e. Singapore, Hong Kong and Japan) by making another S$500-S$600m worth of acquisitions while the remainder of its S$1bn target will come from its Tier 2 markets (i.e. China, Malaysia and Vietnam).

- Key concerns raised include (i) Japan market : Although the industrial properties in Japan offer a lower yield, MLT has entered into swap contracts (from Japanese yen to Singapore dollars) which will lead to a yield pick-up of around 100 to 150bps. In addition, Japan assets which have long leases will complement its shorter term leases in its portfolio in higher growth markets such as China, Malaysia and Hong Kong; (ii) Financing issues : As at 30 Jun 07, around 55% of MLT’s total current borrowings has been hedged and the management expects this hedging rate to increase. With regards to the recent credit crunch, MLT has not faced any issues given the company’s strong credibility. (iii) High gearing of 54% as of 30 Jun 07 : In order to provide for another S$1bn targeted acquisitions in 2008, there is a possibility of an equity fund raising exercise.