January 21, 2020

Mapletree Logistics Trust (MLT) reported an in-line set of 3QFY20 results. Gross revenue and NPI increased 0.3% and 3.9% YoY to S$121.1m and S$108.6m, respectively. This was driven by organic growth and acquisitions in Australia, South Korea and Vietnam, but partially offset by the divestment of five properties in Japan, coupled with lower land rent recognised with the adoption of SFRS(I) 16. DPU grew 2.1% YoY to 2.044 S cents. MLT had recognised a divestment gain of S$23.9m in relation to the sale of Mapletree Waigaoqiao Logistics Park (MWLP) in 3QFY20, and subsequently distributed S$1.8m of the gains during the quarter. It will continue to do so for the next 11 quarters. For 9MFY20, MLT’s gross revenue rose 9.0% to S$362.7m; NPI increased 13.8% to S$323.8m; while DPU improved 3.0% to 6.094 S cents and this formed 76.2% of our FY20 forecast.

MLT continued to exhibit resilience in its operations, as portfolio occupancy increased slightly by 0.2 ppt QoQ to 97.7% and this was driven largely by Singapore (+0.7 ppt), which helped offset the declines in South Korea (-1.7 ppt) and China (-0.4 ppt). Australia, Japan, Malaysia and Vietnam maintained their full occupancy. On the rental front, management achieved positive rental reversions of 1.2%, which was driven largely by Hong Kong, Vietnam and Malaysia.

MLT completed the acquisitions of seven modern logistics properties in Malaysia (one), Vietnam (two) and China (50% interest in four properties) in Nov and Dec 2019. The implied net property income yield was 6.1% and was funded by partial debt and a private placement exercise which raised gross proceeds of S$250m. These countries are considered to be one of the fastest growing ecommerce markets, with Vietnam, Malaysia and China forecasted to record 17.8%, 16.2% and 13.9% CAGR in e-commerce sales from 2018 to 2023F, according to China E-business Research Centre and Statista and Transport Intelligence. We factor in this acquisition and the MWLP divestment in our model, and also lower our cost of equity assumption to 7.0% from 7.6%. This is to take into account MLT’s solid capital recycling activities to unlock unitholder value, continued resilient operations and inclusion into the Straits Times Index which we believe would spur its trading liquidity further. Consequently, our fair value increases to S$1.59 (previously S$1.41). However, we believe positives are more than priced in and valuations remain lofty, based on FY21F distribution yield of 4.7% (as at 20 Jan 2020 close). Maintain SELL with TP of S$1.59. – OCBC Investment Research

Closing Price: S$1.82