SINGAPORE (Jan 23): Analysts are raising their target prices on Mapletree Industrial Trust (MINT), after the REIT showed steady growth in its latest set of results, underpinned by its new revenue contributions from acquisitions and development projects.

Following the REIT’s results announcement on Jan 21, all three brokerage reports spotted by The Edge Singapore – by CGS-CIMB Research, Maybank Kim Eng Research, and OCBC Investment Research – saw higher fair values estimates for MINT. 

MINT reported a distribution per unit (DPU) of 3.16 cents for 3Q20 ended December, some 2.9% higher than 3.07 cents last year. 

This came on the back of a 9.7% increase in revenue to $102.6 million, due primarily to new revenue contributions from 18 Tai Seng and 7 Tai Seng Drive, as well as a higher contribution from 30A Kallang Place. 

Property operating expenses for the quarter narrowed 4.6% to $20.7 million due to a combination of lower property maintenance expenses, utilities and marketing commissions, but was partially offset by additional property taxes for 18 Tai Seng. 

Consequently, net property income (NPI) increased 14% to $81.9 million. 

“Our proactive portfolio rebalancing efforts through acquisitions and developments have underpinned the steady growth in distributable income and DPU in 3QFY19/20,” said Tham Kuo Wei, CEO of MINT’s manager.

Market watchers are quick to note that MINT’s latest results were largely in line with their expectations. 

OCBC Investment Research shares that MINT’s FY20 DPU to-date constitutes some 75% of its full-year forecast, while CGS-CIMB and Maybank Kim Eng’s figures stand at 73% and 77% respectively. 

Maybank analyst Chua Su Tye cites MIT to be the brokerage’s top industrial sector pick, on the back of recovering leasing demand in Singapore and growth visibility from a more resilient portfolio, following the REIT’s high-tech asset investments and overseas diversification. 

“This, together with a stronger balance sheet post a recent $400 million placement, should support further DPU-accretive deals,” says Chua in a Wednesday report. “MINT’s valuation has been driven by strong execution and growth momentum on expanding its hi-tech mix (now at 49.3% of assets under management), and we see upside from its sponsored US data
centre assets in the near-term.”

In particular, Chua hones in on the group’s improved overall occupancy rates to 90.7% from the previous 90.5%. This was spearheaded by a significant improvement in Singapore occupancy rates to 90.5% from 90.2%, due to greater contributions from high-tech buildings which improved to 98.4% from 96.9% previously, as well as business park buildings which saw an occupancy rate hike to 85.1% from a previous 81.9%. 

CGS-CIMB analyst Lock Mun Yee agrees, noting that both segments also experienced positive rental reversions during the quarter, despite weakness in the flatted factory segment which saw a decrease of 1.1% in occupancy rates. And looking ahead, Lock expects the uptrend to continue. 

“MINT continues to be more optimistic on hi-tech spaces given they attract tenants which are expanding or moving up the value chain and could be less price sensitive,” says Lock in a Wednesday report. 

“While MINT has seen positive signs in the historically weak business park segment, they expect improvements to be incremental as they do not see a large demand for such space,” she adds. 

Analysts at the OCBC Research team, too, remain optimistic on the uptrend in the near future. 

“According to CBRE, Singapore's manufacturing sector showed some early signs of recovery in 4Q19, and there were pockets of leasing demand seen, a handful of which were for expansion,” says OCBC. 

In addition, CGS-CIMB’s Lock identifies how MINT’s management had suggested that data centres could feature more strongly in its deal pipeline, and is exploring deals from its sponsor and third parties. 

“We think that the Sponsor’s remaining stakes in the US data centres could be low hanging fruit for MINT to acquire although the timeline of such a deal could depend on the sponsor,” says Lock. 

“We forecast business parks and high-specs buildings to generate 53% of MINT’s NPI in FY22E, up from 41% in FY18

Analysts also note that MINT’s strong balance sheet, with a gearing of 34.1% as at end-December 2019, gives it an estimated $0.7 billion to $1.3 billion in debt headroom for deal opportunities. 

Maybank Kim Eng is maintaining its “buy” call on MINT, with a target price of $2.95. An increase from the brokerage’s previous target price of $2.70, this represents an 11% upside for the stock. 

OCBC and CGS-CIMB, however, remain more conservative on MINT, while continuing to back the REIT for its visible growth profile. 

OCBC has a fair value of $2.87 on MINT, a raise from its previous target price of $2.55. Meanwhile, CGS-CIMB has raised its target price to $2.53 from the previous $2.44. 

As at 4.10pm, units in Mapletree Industrial Trust are trading four cents higher, or 1.1% up, at $2.81. This translates to a price-to-earnings (P/E) ratio of 22.3 times and a dividend yield of 4.7% for FY20F according to CGS-CIMB valuations.