OCBC: MLT Upgrade on recent correction TP$1.50

Mapletree Logistics Trust: Upgrade on recent correction

By Winston Liew
Fri, 26 Oct 2007, 10:00:23 SGT

Mapletree Logistics Trust (MLT) reported a good set of 3Q07 results with revenue growing 11% QoQ to S$39m and distributable income rising 8% QoQ to S$19m. Distributable income per unit (DPU) for the quarter came in at 1.72 cents, +8% QoQ, beating our estimate of 1.50 cents. Growth, like in previous results, came mainly from acquisitions. Since its 2Q07 results MLT has announced four more acquisitions. These assets, together with previously announced acquisitions, will cost a total of S$295m. This means MLT’s asset base will increase from S$2.13b (at 3Q07) to S$2.43b fairly soon. Furthermore, as all the acquisitions are likely to be debt funded, MLT’s gearing will rise to 62%. The implication is that an equity raising exercise is probably on the cards within the next 6 months. Finally since our HOLD downgrade in May, MLT has corrected nicely from S$1.48 to the present S$1.17 or by about 21%. More importantly, its price to book ratio has also come down from over 1.74x in May to a more reasonable 1.39x now. Our previous downgrade was purely on the back of valuation, so in light of the recent correction we are seeing value in MLT. We thus upgrade our rating on MLT from a Hold to BUY and keep our fair value of S$1.50.

Growth again due to acquisitions. Mapletree Logistics Trust (MLT) reported another good set of results. 3Q07 revenue was up over 79% YoY and 11% QoQ at S$38.5m, and distributable income improved 79% YoY and 8% QoQ to S$19.1m. Distributable income per unit (DPU) was in line with sequential bottom-line growth, improving by 30% YoY and 8% QoQ to 1.72 cents. The result is better than OIR's forecast of 1.50 cents. The bulk of the sequential growth came from the acquisition of 9 properties bought over the previous quarter. MLT management indicated that earnings from acquisitions generally lag by about a quarter. In 3Q, only 3 assets were completed so we cannot expect a robust growth in 4Q07. Finally MLT has about 13 properties pending completion worth about S$295m and when completed, its asset value should rise to about S$2.43b from S$2.13b at 3Q07.

Likely penetration of Vietnam and South Korea. Presently MLT's income exposure continues to be Singapore biased. Singapore makes up about 52% (58% in 2Q07) of group NPI, followed by Hong Kong (30%), Japan (13%), Malaysia (3%) and China (2%). Going forward into 2008, we expect MLT to continue to diversify its income and to enter into more new markets. Vietnam is likely to be the next new market followed by South Korea, Vietnam and possibly even India.

Gearing limit to be reached soon. Since its 2Q07 results, MLT has announced 4 more acquisitions. These assets to be acquired will cost a total of S$129m. Together with previously announced acquisitions, MLT has or will be spending a total of S$295m.

The implication is that its asset base will increase from S$2.13b (at 3Q07) to S$2.43b fairly soon. As all the recently announced acquisitions are likely to be debt funded, MLT’s gearing will rise to 62%. The implication is that an equity raising exercise is probably on the cards within the next 6 months.

Upgrade to buy on recent correction. Since our HOLD downgrade in May, MLT has corrected nicely from S$1.48 to the present S$1.19 or by about 20%. More importantly, its price to book ratio has also come down from over 1.74x in May to a more reasonable 1.42x now. Our previous downgrade was purely on the back of valuation, so in light of the recent correction we are seeing value in MLT. We thus upgrade our rating on MLT from a Hold to BUY and keep our fair value of S$1.50.