Brokers' take

Mapletree Logistics Trust | Buy Target price: S$1.50 Oct 23 close: S$1.23 DBS Equity Research, Oct 23

Mapletree Logistics Trust (MLT)'s Q2 2019 gross revenues and net property income grew by 13.8 per cent and 14.6 per cent year on year to S$106.6 million and S$90.2 million, respectively, as improved performance and past acquisitions helped offset the absence of income from the divestment of five properties in FY 2018 and Q1 2019 and the weakness in the Australian dollar. Q2 2019 distribution per unit and 1H 2019 operational performance tracking are in line with estimates.

MLT's portfolio occupancy crept up to 97.6 per cent versus 95.7 per cent in Q1 2019, mainly on the back of lease-up of space in China. Positive rental reversions averaged 1.3 per cent in Q1 2019, mainly from Hong Kong and Vietnam. Singapore remained fairly flat, while other markets like China and Korea saw a slight uptick.

Portfolio cost of debt remained stable at 2.5 per cent in Q2 2019. Meanwhile, gearing increased from 36.4 per cent (Q1 2019) to 38.1 per cent (Q2 2019), largely due to loans to partially fund the acquisition of five properties in Singapore, redevelopment and working capital purposes.

Looking ahead, we see an improved quality in portfolio post the acquisition of five warehouses in Singapore. We have further priced in S$300 million worth of acquisitions to be completed towards the FY 2020 in our estimates.

Best World | Buy Target price: S$1.97 Oct 23 close: S$1.61 RHB Research Institute, Oct 23

The premium skincare and supplements player operating in 12 countries mainly distributes its products to consumers through direct-selling channels. But it also sells products via franchisees in China and export agents in Myanmar. The group is largely immune to labour and rental cost pressures, allowing it to scale its business or expand to new markets without incurring huge capex or major startup/fixed costs.

The group converted its export model into a franchise at the end of Q2 2018. We expect 2H 2018 earnings to catch up when the franchise model commences operations. We also expect FY 2019 earnings to jump by 40 per cent, largely from the full-year impact of this business model change and buoyant market demand.

We initiate coverage with a street-high target price and 32 per cent upside. We expect earnings per share to grow at a compound annual growth rate of 21 per cent over FY 2017-2020 forecasts. This deems the current valuation as compelling. Best World is also sitting on S$87 million net cash and could comfortably maintain its historical dividend payout ratio of about 40 per cent, bringing FY 2019 dividend yield forecast to 4 per cent.

Key risks to our call include regulatory changes, reputational risks, and lack of visibility in inventory management.

Compiled by Lynette Tan

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