What is the news?

GLP Ltd announced 3Q13 net profit of US$124.3 mil, up 36.4% y-y but down 40% q-q, Total revenue reported US$173.5 mil in 3Q13, up 19.9% y-y but stagnant from 2Q13. Development start in China reported a strong 0.85 mil m2 GFA, 180% higher than 2Q13. GLP has FX hedged the US$1.0 bil net proceeds from sales to J-REIT at an average rate of USD:JPY 88.5. Japan Development Fund, the 50:50 JV of GLP with CPPIB, announced to increase the total development expenditure from original US$1.0 bil to US$2.2 bil, raising AUM of GLP’s fund management platform from US$ 7.6 bil to US$8.8 bil.

How do we view this?

The q-q drop in net profit is mainly due to 1. FX loss associated with JPY depreciation and 2. less property revaluation gain from less development completion in China (0.22 mil m2 for 2Q13). The management expects 0.5-0.8 mil m2 development completion in each of the next 3 quarters, which is credible given the existing under development projects. Therefore, we expect net income from revaluation would pick up significantly. Moreover, as expected, the boosted China development start would enable GLP to meet its 2.0 mil whole year target; hence our valuation on China portfolio is not affected. The new completion in China would keep bringing fresh revenue to GLP. However, the weakening JPY from Japanese government loosening could continue weighing on GLP’s Japan revenue through currency translation, and in turn net profit.

Investment Actions?

We maintain the Neutral rating but revise our FY14 target price upward from S$2.65 to S$2.77, equivalent to a forward P/B of 1.13X, to reflect the positive effects from FX hedge, increasing Japan development pipelines and the expanded fund management platform.

Source: PhillipCapital Research - 07 Feb 2013