• Mapletree Logistics Trust's 1QFY3/19 DPU within expectation, at 25% of our FY3/19 forecast.
• Bottomline boost from organic revenue improvement and new acquisitions.
• More contributions from China from 2QFY19F onwards.
• Singapore portfolio to be rejuvenated, pending completion of proposed transaction.
• Maintain ADD with unchanged Target Price of S$1.39.

1QFY3/19 Results Highlights

Mapletree Logistics Trust (MLT) reported 1QFY3/19 revenue of S$105.4m, up 10% y-o-y, while NPI improved 11% y-o-y to S$89.8m, thanks to higher revenue from existing properties and acquisition in Hong Kong, albeit partly offset by income vacuum from divestment of five assets and weaker HK$ and yen.

1Q DPU rose 3.7% y-o-y to 1.96 Scts (advance distribution of 1.398 Scts for 1 Apr - 4 Jun 2018 declared earlier) on better operating performance as well as distribution of divestment gains. 1QFY3/19 DPU was in line with expectations, at 25% of our FY3/19 forecast.

Committed Portfolio Occupancy Up; Positive Rental Reversion

Portfolio occupancy slipped a slight 0.9% to 95.7%, dragged down by lower Singapore, South Korea, and Vietnam take-up as well as inclusion of occupancy of its 50%-owned JV China portfolio.

Including pre-commitments of the latter, overall portfolio occupancy would have been 97.1%, up q-o-q. The trust achieved positive rental reversion of 2.1% during the quarter, led by HK, China and Malaysia while Singapore renewals remained fairly flat.

Earnings Boost From China Acquisition From 2QFY19F Onwards

1QFY3/19 was an active quarter with MLT announcing two major transactions – the first was the acquisition of a 50% stake in 11 China properties from its sponsor for Rmb1.4bn (S$296.5m), completed in Jun. We expect the positive boost from this purchase to be felt from 2QFY3/19F onwards.

Rejuvenating Singapore Portfolio

MLT also proposed the purchase of 5 Singapore ramp-up properties from CWT International for S$730m (all-in cost S$778.3m inclusive of an upfront land premium of S$48.3m). The deal is subject to approvals from relevant authorities and CWT shareholders.

The acquisition NPI yield of 6.2% is attractive vs. the trust’s current implied yield of 5.4%. Assuming 60:40 equity and debt funding, it could boost DPU by 1.6%. But with gearing at 36.4%, we anticipate this purchase to be funded by a combination of debt and equity as well as potential monetisation of some older assets.

Post purchase, Singapore would account for 33% of assets under management (AUM) and 41% of revenue. Our current DPU projections have not included any impact from this acquisition.

Maintain ADD

We tweak our FY19-21 DPU estimates slightly post results and leave our DDM-based Target Price of S$1.39 unchanged. With organic growth improving, together with its acquisitions, we continue to like MLT’s Asia Pacific logistics story. Income visibility is strong with 82% of its interest rates fixed and 73% of its amount distributable for FY19F hedged or in S$. 

Potential re-rating catalysts are accretive new acquisitions that would continue to drive DPU growth. Downside risks include rising trade tension.

Source: CGS-CIMB Research - 24 Jul 2018