Brokers’ take: Analysts positive on MLT acquisition plans, but wary of near-term forex weakness
Vivienne Tay
ALTHOUGH analysts are optimistic on the ability of Mapletree Logistics Trust (MLT) to execute accretive acquisitions, worries over interest rate costs and near-term foreign exchange (forex) weakness continue to hover.
For OCBC Investment Research, rising borrowing costs and more challenging conditions for inorganic growth could weigh on the distributable income growth of the real estate investment trust (Reit) in the near term, it said in a report on Friday (Jan 20).
The same factors could also dent its share price, as the improved acquisitions outlook gets offset by near-term forex weakness, said Citi analyst Brandon Lee in a separate report.
“With operational weakness in China (mostly in the 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 and divestments to mitigate the distribution per unit (DPU) weakness,” he added.
On Thursday, MLT’s manager reported that accretive acquisitions had boosted the Reit’s distribution per unit for the third quarter. Gross revenue was up 8 per cent to S$180.2 million, thanks to acquisitions completed in Q1 and the prior year.
The results were in line with the expectations of the research teams from OCBC Investment Research, Citi and DBS Group Research.
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OCBC has raised its fair value on MLT to S$1.71 from S$1.68, implying a potential upside of 3.6 per cent from the counter’s last trading price of S$1.65 as at 4.56 pm on Friday. MLT units were trading 2.5 per cent or S$0.04 higher at the time.
The increase in fair value comes as OCBC lowers its cost of equity assumption slightly to 6.6 per cent, after factoring in an ESG rating upgrade which occurred last November. The upgrade was the result of improvements in MLT’s corporate governance score and business ethics – both considered average now, compared to global peers, OCBC said.
Although MLT will not be immune to the uncertainties in the macroeconomic environment, OCBC expects the Reit to remain resilient, relative to its peers. It also sees MLT as a key beneficiary of the structural shift towards more robust e-commerce growth trends ahead.
Citi is maintaining its “neutral” stance on the counter, although it prefers CapitaLand Ascendas Reit for its more favourable three-year DPU compound annual growth rate of 3 per cent, versus MLT’s 1 per cent.
Citi noted that MLT’s gearing edged up 0.4 percentage point to 37.4 per cent on weaker currencies, but this could fall to 37.2 per cent if proceeds from three recent divestments are used to reduce debt, implying a debt headroom of about S$600 million.
“With China reopening a near-term focus, we have seen increased interest in MLT in recent times as investors look for proxies,” said DBS Group Research in a flash note. It has an unchanged “buy” call on MLT, with a target price of S$1.80, implying a potential upside of 9.1 per cent
The research team noted that MLT is trading at FY2023 and FY2024 estimated yield of 5.4 per cent to 5.5 per cent and 1.13 times its net asset value, which is below its three-year mean.
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