Yesterday, GLP reported its first earnings result which was in-line with street estimates. Macquarie Equities Research (MER) who attended the company’s post-results briefing has an Outperform rating on GLP. MER believes that GLP, trading at only 1.2 times its price-to-book versus peers averaging 1.37 times, offers an attractive risk/reward proposition to play into the rising modern warehouse demand in China…

Here are excerpts from the MER report published on 14 May 2015.

Results recap: Full year 2015 clean net income came in within MER expectations at US$231m (18% year-on-year). Stabilised rent growth across the GLP’s key geographies – China, Japan and Brazil, were up 3-6% year-on-year. Stabilised occupancy improved in China (+2%) and remained high in Japan and Brazil at more than 97%.

China cap rates set to compress in 2015. Current logistics warehouse cap rate in China is at 6.8% (MER’s target: 6.5%) and is expected to compress by 0.25% to 0.5% in 2015, according to GLP CEO Ming Z. Mei. This is in-line with MER’s thesis that modern warehouses in China remain severely undersupplied, at least in the near term.

Time to sow more in China. According to MER’s development completion 3 year forecast (US$7bn versus GLP’s US$8bn) and capital expenditure estimates, GLP will run down its US$2.9 billion cash (post-US fund closure) within the next 1-2 years. MER expects a second development fund in China to be announced soon.

US fund syndication in final phase. On 8 December 2014, GLP co-invested with GIC (55%-45%) to acquire a portfolio of assets in the U.S, with the intention to sell down its stake to 10% by August 2015 to a group of investors. This is now expected to close within the next few weeks.

A clean slate going forward. GLP has made a firm commitment that there will not be any more divestment of its China business. MER also highlights that 21% of land acquisition made in full year 2015 were somewhat attributable to support from China consortium investors.

Price catalyst
12-month price target: S$3.13 based on a Sum of Parts methodology.
Catalyst: 1Q16 results in August 2015.

Action and recommendation
MER reiterates their Outperform rating on GLP. Trading at only 1.2x P/B versus peer average at 1.37x and with a rising ROE profile (+4% over next 3 years), GLP offers investors an attractive risk/reward proposition to play into rising modern warehouse demand in China.

Source: Macquarie Research - 15 May 2015