Analysts at DBS Group Research, CGS-CIMB Research and Citi Research have maintained their “buy”, “add” and “neutral” calls on Mapletree Logistics Trust (MLT) respectively, following its 2QFY2023 ended September results announcement.
Citi analyst Brandon Lee says MLT’s 2QFY2023 results revealed more negatives than positives, evidenced by subdued acquisitions outlook, China uncertainty over the next six to 12 months, softer reversions ahead as well as higher doubtful receivables in Singapore more than offsetting its healthy occupancy outlook.
“MLT is also no longer as aggressive on acquisitions, but will focus on divestments to keep dry powder ready. While we appreciate MLT's disciplined approach to acquisitions, we believe investors are unlikely to pay a premium for the stock in terms of yield and P/B in view of a slower earnings growth outlook,” he adds.
Meanwhile, DBS analysts Derek Tan and Dale Lai remain positive on MLT for its earnings resilience with potential upside as it rides on the robust fundamentals for logistics properties post-pandemic.
“MLT’s occupancy rates remained stable at 96.4%, a 0.4% dip q-o-q. Overall performance has been stable, with most countries maintaining occupancy rates and retention rates. While we saw slight declines in the occupancy rates in Singapore, this was mainly due to the conversion of a single-tenanted property to a multi-tenanted property as the REIT looks to diversify its earnings base and also establish a new working relationship with underlying tenants,” the analysts say.
CGS-CIMB analysts Lock Mun Yee and Natalie Ong point out that there was robust positive rental reversion of 3.5% in 2QDY2023, with the most uplift from Australia, Singapore, Vietnam and Japan. About 16.3% of its rental income is up for renewal in 2HFY2023, they add.
See also: Test debug host entity
The analysts do, however, note a decline in China’s occupancy rates. “As per the manager, even with the continued general weakness in China, it should remain resilient in 2HFY2022, despite lockdowns seen in selected cities.”
Lee further highlights China’s potential volatility, with rent reversion expected to slow to 1.5%-2% over the next few quarters as MLT starts to encounter resistance to rental increase — but unlikely to turn negative, he adds. Tier 1 and 2 cities remain stable with occupancy of 93%-97%, supported by limited supply and high demand for Grade A space. However, reversions for lower tier cities will be weaker with occupancy of 91% due to more supply coming up.
“By trade sectors, low-mid value-added goods (including fashion/apparel and furniture/furnishings) are starting to see pressure, mitigated by better demand for high value-added goods (including luxury, consumer staples, healthcare, electronics/IT, pharma and chemicals,” he adds.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
The REIT has a well-staggered debt maturity with an average debt duration of 3.7 years, DBS points out. MLT has only 7% of its debt expiring in FY2023. While the analysts see upward pressure in refinancing rates in the near term, they believe that its high hedge rates of about 80% will substantially shield the REIT from higher debt obligations in the medium term.
MLT continues to review but will hold off on acquisitions, given the higher cost of equity limiting accretions for the REIT. With higher cost of capital and acquisition yields yet to normalise, the REIT is looking to work on development and value-added deals to optimise returns and, in the meantime, capture some NAV upside through value-addition and repositioning selected assets. DBS believes this strategy will be a positive development for the stock.
“With macro uncertainties and a global slowdown, we have seen the recent share price weakness to be an opportunity for investors to buy in due to the ‘defensive’ nature of the logistics industry.
“Given the strong visibility of its income and a high income hedge ratio, we believe that MLT will stand strong amid volatility. MLT is currently trading at a about 6.0% yield and P/B of 1.1x, which is below its three-year mean,” the analysts add.
DBS has revised its target price for MLT to $1.80 from $2.05 previously, on the basis of higher risk-free rate assumptions (3.5% from 3.0%). The analysts have also raised their interest rate assumptions for FY2023/FY2024.
CGS-CIMB analysts lower their FY2023-FY2025 DPU estimates by 2.11%-2.23% as they tweak up their interest cost assumptions. Their DDM-based target price is lowered to $1.91 on the back of a slightly higher cost of equity of 7.64%.
Meanwhile, Lee’s target price of $1.59 is based on the following assumptions in its dividend discount model valuation — a risk free-rate of 3.5%, overall cost of equity of 8% and terminal growth of 2.1%.
As at 10.54am, shares in MLT are trading 2 cents higher or 1.33% up at $1.52.
