SINGAPORE (Aug 30): CIMB Research is maintaining its “hold” call on Mapletree Logistics Trust (MLT) with a higher target price of $1.13 as it continues to project total returns of less than 10%.
In a Tuesday report, lead analyst Yeo Zhi Bin is positive on the stock given the proposed acquisition of Mapletree Logistics Hub Tsing Yi, Hong Kong SAR (HK) is expected to be earnings accretive.
See: Mapletree Logistics Trust to acquire Hong Kong warehouse for $834.8 mil
“We view [Mapletree Logistics Hub Tsing Yi’s] acquisition price as attractive, as MLT’s existing properties in Hong Kong are yielding 4.5%. Further, Colliers and CBRE have used valuation cap rates of 5.1% and 4.6%, respectively. This compares to c.4% cap rate for HK warehouses (partly a function of strata-titled warehouses),” says Yeo.
To recap, the trust had previously proposed to acquire the 11-storey modern ramp-up warehouse for $834.8 million, a price which the analysts view as attractive.
Yeo says the acquisition will increase MLT’s net lettable area (NLA) in Hong Kong by more than 70% to 2.8 million sf such that its business in the country will become the trust’s second-largest income contributor by accounting for 27% of its NPI from 17% previously.
CIMB is increasing its FY3/18F-20F distribution per unit (DPU) projections by 1.1-1.7% on the assumption of an equity issuance price of $1.15 per unit, while expecting net asset value (NAV) to inch up to $1.05 per unit at end-FY18F after the acquisition is completed, presumably in Oct.
It has projected the trust’s gearing to improve to 38% from 39% previously post the transaction, and a further drop to 37.2% after including its potential divestment of 7 Tai Seng Drive in Singapore.
“We like Hong Kong’s market fundamentals sand the asset’s quality, and we commend management’s balance sheet recalibration,” says Yeo.
“Perhaps, the only one thing which we are lukewarm on is valuations,” he adds.
CIMB is projecting MLT to register $419.6 million in gross property revenue in March 18F, which translates to a distribution per share (DPS) of 7.8 cents and yield of 6.52%.
As at 12.06pm, the counter is trading 1 cent higher at $1.22 at 1.13 times book.
