Top Stock Highlights of the Week – Alibaba, Mapletree Logistics Trust and Sembcorp Marine

Welcome to the latest edition of top stock market highlights.

Alibaba Group (SEHK: 9988)

Alibaba surprised the market this week when it announced that the company will be split into six units that will individually raise funds and explore separate IPOs.

The breakup into smaller units operating with autonomy helps to pave the way for spinoffs to realise value for shareholders.

This split may also address the Chinese government’s push to decentralise Alibaba’s business lines and decision-making power.

The move comes around 21 months after the government clamped down on ride-hailing app Didi and suspended the IPO of Ant Group, the fintech division of Alibaba.

The announcement on Monday evening saw the American depository shares of Alibaba (NYSE: BABA) climb 20% from US$86.12 to close at US$103.38.

Jack Ma, Alibaba’s billionaire co-founder, also returned to China this week after spending more than a year abroad.

The six divisions that will be formed as part of the overhaul include cloud intelligence, global digital, Taobao Tmall online shopping, local services such as meal delivery, Cainiao logistics, and digital entertainment media & entertainment.

Despite this abrupt shift, Alibaba remains focused on cost-cutting to improve its bottom line.

Previously, the technology giant had spent aggressively to take market share in various sectors as it chased rapid growth.

The coming months should be interesting as the split flows through the organisation as investors await further details from Alibaba.

Mapletree Logistics Trust (SGX: M44U)

It’s good news for REIT investors as the high interest rate cum inflationary environment has not prevented the sector from undertaking acquisitions.

Mapletree Logistics Trust, or MLT, announced a series of proposed transactions totalling S$946.8 million.

The logistics REIT plans to purchase a 97% effective interest in six properties in Japan, a property in Sydney, Australia, and a property in Seoul, South Korea.

Meanwhile, MLT is also in discussion to potentially acquire another two properties in China for around S$209.6 million and may divest property in Hong Kong for approximately S$100.3 million.

For the proposed acquisitions of eight properties, these assets are fully occupied and have a weighted average lease expiry (WALE) by net lettable area of 4.4 years.

The implied net property income (NPI) yield is 3.8% for the properties and they are acquired at a 4% discount to their independent valuation.

The Hong Kong divestment, should it proceed, will be at more than a 20% premium to its valuation.

With these purchases, the asset under management (AUM) contribution from developed markets rises from 71% to 73%.

MLT will also reduce its reliance on Singapore as a key gross revenue generator from 26.4% to 24.9%.

The acquisitions will be funded by an equity fundraising (EFR) exercise to raise S$200 million while the remainder will be funded by debt.

After the EFR exercise, a total of 121,285,000 new units were issued at an issue price of S$1.649 per unit, representing a discount of around 1.5% to the volume weighted average price of S$1.6739.

The acquisitions will result in a 2.2% uplift to MLT’s pro-forma distribution per unit for the first nine months of fiscal 2023 (9M FY2023) to S$0.06894 from S$0.06743.

Aggregate leverage, however, is set to rise from the current 36.6% to 39.9%.

The transaction will result in an improvement in MLT’s portfolio metrics.

AUM will rise by 7.4% to S$13.5 billion, WALE will improve by 3.1% to 3.3 years and the occupancy rate will rise slightly from 96.9% to 97%.

Sembcorp Marine Ltd (SGX: S51)

Sembcorp Marine Ltd, or SMM, announced that it had secured a landmark offshore renewables project with its consortium partner GE Renewable Energy’s Grid Solutions, a unit of General Electric Company (NYSE: GE).

The framework cooperation agreement (FCA) involves the building of the biggest and most advanced high voltage direct current (HVDC) electrical transmission system for TenneT.

This FCA spans five years with an option to extend another three years, and consists of three contracts worth a total of around €6 billion to supply HVDC for offshore wind farm projects.

TenneT is a European grid operator for the Netherlands and a part of Germany that operates over 25,000 km of high-voltage lines and cables, delivering electricity to 43 million users.

SMM secured this contract based on its impressive offshore construction track record and is the third HVDC offshore platform project the group is undertaking.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

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