Analyst sentiments on Mapletree Logistics Trust turn lukewarm due to valuations

SINGAPORE (April 29): CGS-CIMB Research is downgrading its call on Mapletree Logistics Trust (MLT) from “add” to “hold” due to high valuations of 1.3 times price-to-book and a 5.4% yield, as well as the risk of a default from CWT.

The research house has raised its price target to $1.48 from $1.44 after tweaking forecasts to factor in MLT’s recent Japan divestments, on top of lower risk-free and terminal growth rates to account for a more dovish interest rate sentiment.

Meanwhile, Maybank Kim Eng is maintaining its “hold” call on the trust with an unchanged price target of $1.40.

In a report on Saturday, CGS-CIMB analyst Lock Mun Yee says the potential default of CWT tenancies could cause an overhang on MLT.

“CWT contributed to 9.2% of gross revenue from the five ramp-up properties in Singapore bought in Jul 18. While CWT continues to pay rents, MLT currently holds security deposits of six months of rental in relation to these leases,” notes Lock.

“We understand that about 1/3 of the space is taken up by end users and there are plans to novate these underlying leases over to MLT. For the remaining space, MLT mentioned that it has received enquiries from other third-party logistics providers,” she adds.

The analyst nonetheless likes MLT for its latest divestment of five properties in Japan, as she believes the divestment gains could be distributed to unitholders with some of the proceeds being recycled into newer Japanese assets developed by its sponsor in due course.

Maybank analyst Chua Su Tye however prefers Ascendas REIT (AREIT), which he rates “buy” with a target price of $3.10, over MLT as the former trust trades at a similar 5.6% yield, but offers stronger DPU growth of 3.5% three-year CAGR, as well as a comparatively stronger balance sheet for acquisitions.

He sees limited downside risks for MLT considering “keen leasing interest” from third-party logistics providers (3PLs) for its CWT properties, but lowers his estimates 2-3% due to slightly weaker China growth assumptions.

Commenting on MLT’s recent set of 4Q results, the analyst reiterates his view that the trust’s logistics assets have stablised although growth has slowed due to a larger base.

“We believe demand for newer high-specs logistics properties in Singapore will remain tight due to expansion activities (Amazon, etc). Management indicates keen leasing interest from 3PLs for its CWT-related properties, especially for 6 Fishery Port,” says Chua.

As at 11:42am, units in MLT are trading flat at $1.48, which implies a 5.6% FY20E DPU yield according to Maybank estimates.