Warrants Highlight 

GLP - MER's price target of $3.05

Macquarie’s Global Logistic Properties warrants

Mid last week on 12 Dec, Macquarie Equities Research (MER) initiated coverage on Global Logistic Properties (GLP) with an Outperform recommendation and a 12-month target price of S$3.05 per share. While the existing stabilised portfolio dominates the valuation of GLP, the delta is in the assumptions regarding future development completions, capital re-cycling through fund launches and new market entry. MER ascribes S$0.54 per share to the future development pipeline in China, Brazil and Japan. This valuation is sensitive to and relies upon growth in annual new starts and completions.

Leveraging dominant market positions
GLP has successfully built upon the original Prologis foundation of high quality industrial investment properties via development and complimentary acquisitions. GLP is the largest logistic warehouse landlord by a considerable margin in each of the markets within which it operates: China, Japan and Brazil. GLP has arguably been able to take advantage of the weakness of its peers as they struggle with de-leveraging and restructuring to aggressively build a portfolio of high quality investment properties and a market leadership position with relationships with tenants and capital partners that can be leveraged in existing and new markets to drive growth. GLP's dominant position in China should provide leverage to the growth in domestic consumption and the logistics market, both goals in the 12th five year plan.

Re-cycling capital to improve RoCE
Recently management have accelerated the development of the funds’ management platform attracting the highest quality 3rd party capital partners, which should allow GLP to re-cycle capital and create an asset light business model, boosting return on capital employed (RoCE). GLP aims to recycle capital from lower RoCE developed market Japan, to higher RoCE developing markets China, Brazil and longer term, potentially India and Vietnam. A key step of this process is currently underway with the attempted listing of a J-REIT.

Hard lessons learned
Industrial property developers and fund managers Prologis, Goodman Group and AMB were amongst the worst performers during the 'Global Financial Crisis' as high look-through gearing, aggregation of debt and a short debt maturity profile demanded de-leveraging through deeply discounted asset sales and equity issuance. This is a process that has taken several years to resolve. Going forward MER will closely monitor 'on-balance sheet' and 'look-through': gearing, interest cover, debt maturity and debt provider concentration.

Singapore Market Wrap

Positive US session unable to spark STI

Local investors stayed on the sidelines on Wednesday despite the S&P 500 Index rising 1.1% on Tuesday night. The STI inched up 0.1% to 3,158.6 day-on-day.

Call STI 3250MBeCW130430 (R5XW) exercise level 3,250.*
Put STI 3100MBePW130430 (R5WW) exercise level 3,100.*

Property counters facing selling pressure
CapitaLand headed for its third consecutive drop, while Yanlord fell 2.6% for the week. Property news dominated headlines this week with Singapore home sales dropping 44.0% month-on-month in November whereas China reported rising home prices in 53 of 70 cities during November compared to 30 cities in October. CapitaLand dropped 1.1% to $3.63 with Yanlord slipping 1.6% to $1.50 for the trading session.

Call CapitalaMBeCW130704 (R5YW) exercise price $4.00.*
Call CapitalaMBeCW131202 (Q7YW) exercise price $3.60.*
Put CapitalaMBePW130903 (R5TW) exercise price $3.50.*

Call Yanlord MBeCW130201 (Q4QW) exercise price $1.40.*
Call Yanlord MBeCW130910 (R5GW) exercise price $1.50.*

Temasek raised Olam holdings
Temasek's Aranda Investments Pte. bought 200,000 shares of Olam, bringing its holdings to 17% from 16.99%. This is after Temasek's pledge to purchase any remaining Olam rights which are not taken up by other investors. Olam jumped 4.4% to $1.54 on Wednesday.

Call Olam MBeCW130606 (R5FW) exercise price $1.55.*
Call Olam MB eCW130603 (R3LW) exercise price $1.80.*

Overnight Market Wrap

S&P falls on budget negotiations

The S&P index dropped 0.8% day on day to close below its two months high.

On Tuesday, House speaker John Boehner proposed a "Plan B" which raises the tax rates for people with incomes over $1 million. This compares to the $400,000 level which President Barack Obama proposed after compromising. The threshold level was at $250,000 previously.

The White House threatened to veto "Plan B" saying that it would bring only "minimal" changes in the projected budget deficits. Obama continued to say that the Boehner proposal "defies logic" because it raises tax rates on some Americans and contains no spending cuts, which the Republican had been adamant on (CNN).

In macro news, housing starts slumped 3% in October while building permits increased to a four-year high. The S&P gauge of homebuilders dipped 0.9% for the day.

Overnight Markets

Indices	Last	Change
STI	3158.57	0.1%
HSI	22623.40	0.6%
DJIA	13252.00	-0.7%
S&P 500	1435.81	-0.8%
Nasdaq	3044.36	-0.3%
China A50	7826.69	0.1%

Corporate News

Corporate Announcements

Temasek has raised its stake in Olam from 16.99% to 17% after purchasing 200,000 shares in the commodities company.

Ex-dividend dates:
Mon 24 Dec: Singtel ($0.068)