• GLP beat our expectations with 1Q15 Revenue at US$169mn (19% y-y) on back of higher rents on completion and stabilisation of China development projects
• Establish a strategic partnership with China’s largest state-owned warehouse logistics provider
• Expect GLP growth to continue with strong development plans and leasing momentum
• Maintain Accumulate with raised TP $3.16

What is the news?

GLP posted its 1Q15 results with Revenue at US$169mn (19% y-y) supported by increasing rents on renewal (up 6.2% y-y) and on completions of the development projects in China. The PATMI ex revaluation declined 5% y-y mainly attributed to higher NCI after the divestment of 24.4% GLP China to China consortium investors and higher net finance costs. The pro-forma earnings ex revaluation rose 27% y-y after adjusting the divestment of GLP China business, Japan’s sale of assets and FX related effects. GLP also announced the establishment of a strategic partnership with China Materials Storage and Transportation Development Company (CMSTD). The partnership will work in a few ways: (1) To form a JV with investment of US$583mn to develop modern logistics facilities in China where GLP will hold a 49% equity stake with the option to increase the stake to 50%. (2) GLP to invest RMB 2bn (US$324mn) to acquire 15.3% stake in CMSTD.

How we view this

GLP’s 1Q15 top and bottom line beat our expectations by 7% and 13% respectively for this quarter due to higher-than-expected rents and better operating margins. We estimate revenue for coming quarter to increase >10% q-q on the back of new completions and acquisition of the Brazil properties while the PATMI ex revaluation to decline due to the divestment of the China business operations. Nevertheless, the capital recycling with acceleration of development starts will augment GLP’s business growth in long term.

A major challenge among the China logistics property developers is the acquisition of land due to the limited land released by the local government. The partnership with CMSTD will strengthen GLP market leadership position in China, giving GLP the access to CMSTD’s extensive portfolio of assets and land resources of total 9mn sqm, leveraging on its network to provide better service to their customers, thus increasing the stickiness for customer retention. There are possible upsides in valuation when the legacy assets of prime locations in CMSTD’s portfolio could be re-zoned for commercial or residential uses in the future.

Investment Action

Buoyant leasing activities driven by domestic consumption and landlord-favored market dynamics continue to lend strength to the rental growth modern logistics facilities. We favor GLP for its dominant market position and strong business fundamentals. We raise our earnings estimates by 10% for FY15 and revise our TP to $3.16. Maintain Accumulate.

Source: Phillip Securities Research - 6 Aug 2014