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Target prices raised for Mapletree Logistics Trust on acquisition prospects

Michelle Zhu
Michelle Zhu1/24/2018 11:09 AM GMT+08  • 3 min read
Target prices raised for Mapletree Logistics Trust on acquisition prospects
SINGAPORE (Jan 24): DBS Vickers Securities is maintaining its “buy” recommendation on Mapletree Logistics Trust (MLT) with a higher target price of $1.45, above the consensus average of $1.35, to account for potential new acquisitions.
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SINGAPORE (Jan 24): DBS Vickers Securities is maintaining its “buy” recommendation on Mapletree Logistics Trust (MLT) with a higher target price of $1.45, above the consensus average of $1.35, to account for potential new acquisitions.

See: Mapletree Logistics Trust posts 2% increase in 3Q DPU to 1.907 cents

In a Wednesday report, lead analyst Derek Tan says he remains excited on the trust’s growth prospects with the recent acquisition of Mapletree Logistics Hub Tsing Yi (MLHTY), coupled with a stronger balance sheet post recapitalisation and “a myriad of acquisitions”.

Noting how FY18F has been an active year for MLT, Tan sees the REIT gearing up for 2H18-2019 with potential acquisitions in China, Vietnam and Australia from third parties or its sponsor in the medium-term.

As such, the analyst has priced in $200 million worth of acquisitions in his estimates going forward, which are to be funded by debt.

“We believe that the street has not accounted for the improved fundamentals post acquisition of MLHTY. Based on estimates, the portfolio mix is tilted towards more developed markets (SG, Japan, HK and Australia) which contribute 85% of portfolio value and 82% of portfolio net property income,” notes Tan.

“3Q18 results remain stable with organic growth outlook remaining positive for key markets,” he adds.

Key upside risks to his view include a faster-than-expected acquisition pace or a better-than-expected outlook for the Singapore warehouse market, which will translate to positive adjustments to DBS’ earnings estimates.

Separately, OCBC Investment Research is also reiterating its “buy” rating on MLT with a higher fair value of $1.48 from $1.35 previously on expectations of MLT to benefit from robust global economic growth.

“Coupled with a keen eye for a more active acquisition drive, support from its sponsor’s robust pipeline and MLT’s excellent track record of value-adding to its acquisitions, we believe it is justifiable to increase our terminal growth rate assumption from 2% to 2.5%,” says analyst Andy Wong in a Wednesday flash note.

Meanwhile, CIMB Research has upgraded its call on MLT to "add" from "hold" previously, while raising its target price on the REIT to $1.43 from $1.21 on the belief that the trust's bottom-up story is constructive, supported by the stabilisation of its existing portfolio as well as growth prospects from re-development/AEIs.

Similarly, CIMB analyst Yeo Zhi Bin foresees the possibility of “sizeable acquisitions” within the next 3-6 months, including a buyout of the remaining interest in the trust’s other strata-titled Hong Kong properties and third-party deals in Australia.

“On funding, the manager expects gearing to increase to 39% (3QFY18: 37.8%) after the completion of Shatin (expected in Jan 2018). As such, we believe future acquisitions could be funded by the issuance of new perpetual securities and capital recycling (i.e. divestment gains from 7 Tai Seng),” says Yeo.

Acquisition prospects aside, Yeo is also positive on the management’s active portfolio rejuvenation strategies, in particular AEI potential and sequent revenue growth from its latest acquisition of Shatin No. 3 in Hong Kong.

See: MapletreeLog acquiring remaining 38% of HK warehouse in Shatin for $104 mil

As at 11.20am, units in MLT are trading 2 cents lower at $1.36, representing a FY19F distribution yield of 5.5% based on DBS’ projections.

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