• Escalating trade tensions
• Increased exposure to China
• Limited operational impact

Rising Trade Tensions Have Routed Financial Markets

The ongoing trade friction between the US and China has undoubtedly spooked the equity markets and also casts a pall over the outlook of global trade and correspondingly logistics-related securities. We note that Mapletree Logistics Trust (MLT) derived 6.3% of its NPI from China in FY18.

Completed Acquisition of 50% Interest in Portfolio of Assets in China

MLT recently completed the acquisition of a 50% interest in each of 11 logistics properties in China on 6 Jun for a total acquisition cost of RMB1.0b (~S$213.9m). Its sponsor Mapletree Investments Pte. Ltd. holds the remaining 50% stake. Within this portfolio, JD.com and Cainiao Smart Logistics Network Limited, the logistics arm of Alibaba, count as the largest tenants, contributing 20.8% and 19.3% of the portfolio’s gross revenue, respectively.

Following this acquisition, China is expected to contribute 9% of its pro forma portfolio valuation and 11% of its pro forma FY18 NPI, as compared to 5% and 6% previously, respectively. While this may raise some concerns over MLT’s increased exposure to China amid the current trade spat, we believe a significant portion of its underlying end-user revenue from China is derived domestically due to the fast growing e-commerce sector. Hence we see limited impact on MLT’s earnings. For example, JD.com’s business is primarily conducted in China.

After taking into account the aforementioned acquisition and recent private placement exercise (gross proceeds of S$220m) to finance this purchase, we trim our FY19F DPU forecast by 0.9% and FY20F forecast by 0.8%.

Lower FV on Higher Discount Rate Assumption

E-commerce sales in China are projected to increase at a CAGR of 16.0% from US$449b in 2017 to US$813b in 2021, according to Euromonitor and Colliers International. However, given the uncertainties and negative sentiment surrounding the ongoing trade tensions, we adopt a more conservative stance by raising our discount rate assumption on MLT from 7.8% to 8.2%.

This consequently lowers our fair value estimate from S$1.44 to S$1.34.

Source: OCBC Research - 21 Jun 2018