Analysts see 'resilient' results for MLT's 3QFY2023 although Citi sees 'negative' share impact on forex weakness

Felicia Tan
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OCBC and UOB have kept their "buy" calls while Citi has maintained its "neutral" call on MLT.

Analysts have mostly remained positive on Mapletree Logistics Trust (MLT) after the REIT’s distribution per unit (DPU) for the 3QFY2023 ended Dec 31, 2022, rose 1.9% y-o-y to 2.227 cents.

During the quarter, MLT’s gross revenue rose by 8.0% y-o-y to $180.2 million while its net property income (NPI) rose by 7.3% y-o-y to $157.2 million.

For the 9MFY2023, MLT’s DPU rose by 3.4% y-o-y to 6.743 cents. 9MFY2023 gross revenue rose by 11.3% y-o-y to $551.7 million while NPI rose by 10.4% y-o-y to $480.4 million.

The REIT has a diversified logistics portfolio in several countries in the Asia Pacific (APAC) region including Singapore, Hong Kong, Japan, Australia, Vietnam, China and India with a manager that has strong execution abilities, notes the team at OCBC Investment Research.

To the team, MLT’s 3QFY2023 results stood “in-line” with its expectations, calling it “resilient” despite the foreign exchange (forex) and interest rate headwinds. The REIT saw higher gross revenue and NPI driven by organic and inorganic growth and offset by the depreciation of the Japanese yen (JPY), Korean won (KRW), Chinese yuan (CNY) and the Australian dollar (AUD) against the Singapore dollar (SGD).

On a constant currency basis, MLT’s DPU would have grown by 8.6% y-o-y for the quarter.

“MLT expects minimally another three quarters of net negative impact from forex, although it has hedged [some] 79% of its estimated distributable income for the next 12 months. For 9MFY2023, MLT’s NPI was up 10.4% y-o-y to SGD,” says the team.

“Although MLT will not be immune to uncertainties in the macroeconomic environment, we expect it to remain relatively more resilient [compared to] its peers. We also see MLT as a key beneficiary of the structural shift towards more robust e-commerce growth trends ahead,” it writes.

“However, rising borrowing costs and more challenging conditions for inorganic growth are likely to weigh on its distributable income growth in the near-term,” it adds.

The OCBC team has kept its “buy” call with a higher fair value estimate of $1.71 from $1.68 previously. The new target price is due to the lowered cost of equity assumption of 6.6%, along with an upgrade in MLT’s environmental, social and governance (ESG) rating in November 2022.

“The upgrade was underpinned by improvements in MLT’s corporate governance score and business ethics practices, both of which are now average compared to global peers,” says the OCBC team.

UOB Kay Hian analyst Jonathan Koh has also kept his “buy” call on MLT with an unchanged target price of $1.99, the highest among the brokerages so far.

Like his counterparts at OCBC, MLT’s 3QFY2023 results also stood within Koh’s expectations.

“MLT focuses on maintaining stable occupancies, diversified tenant mix and well-staggered lease expiry profile. It benefits from structural drivers of demand, including growth in e-commerce, urbanisation and shift to just-in-case inventory management,” he notes.

“Demand from e-commerce has slowed but is offset by growth from renewable energy, including electric vehicles. Management sees growth from food & beverage and pharmaceutical products,” he adds.

In Koh’s view, accretive acquisitions to “rejuvenate and reposition towards modern specifications logistics facilities, domestic consumption and e-commerce” and positive contributions from redevelopment projects are upsides to MLT’s unit price.

Citi Research analyst Brandon Lee is the only analyst to take a “neutral” view of MLT.

The way he sees it, though the REIT’s 3QFY2023 results are “in line” with his expectations, they highlighted the negative impact that weak foreign currencies had on MLT’s DPU and net asset value (NAV). The REIT’s NAV fell by 3% q-o-q during the quarter.

“With operational weakness in China (mostly lower-tier cities) and forex weakness likely to last another two to three quarters, we think MLT will need to deliver more than its target amount of acquisitions ($200 million - $400 million) and divestments ($200 million - $400 million) to mitigate DPU weakness,” says Lee, who has kept his target price at $1.59.

He adds that he prefers CapitaLand Ascendas REIT (CLAR) given its “more favourable” three-year DPU compound annual growth rate (CAGR) of 3% compared to MLT’s 1%.

Units in MLT closed 2 cents lower or 1.15% down at $1.72 on Jan 30.

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