Brokers’ take: Analysts stay positive on MLT following strong Q1 results
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Michelle Zhu
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IMPROVING rental reversions and robust operational results for the first quarter ended Jun 30 have led brokerages to reaffirm their “buy” calls on Mapletree Logistics Trust (MLT), although CGS-CIMB has cut its price target on the counter to factor in a slightly higher cost of equity.
In a report on Thursday (Jul 21), CGS-CIMB maintained its “add” call on MLT with a S$0.05 lower price target of S$2.05, as cost of equity assumptions were raised to 7.64 per cent from 7.61 per cent previously.
“With a slightly higher cost of capital amid a rising interest rate environment, (MLT) is more selective on new acquisitions as it expects cap rates to soften slightly, particularly for the lower quality/older and less well-located properties,” noted its analyst Lock Mun Yee.
Maybank Research, UOB Kay Hian (UOBKH) and DBS Group Research have all reiterated their “buy” calls on the trust with the respective target prices of S$2.15, S$2.08 and S$2.05.
Highlighting strong leasing momentum and a portfolio rental reversion of 3.4 per cent versus 2.9 per cent in the previous quarter, Maybank analyst Chua Su Tye sees upside to MLT’s earnings from potentially stronger-than-expected rental recovery, acquisitions and divestment gains.
“Valuations are undemanding at 5 per cent yield, backed by high distribution per unit (DPU) visibility, which is underpinned by resilient occupancy amid steady growth in demand, and improving rents in FY2023,” said the analyst in a Friday report.
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Looking ahead, Chua believes reversions will remain positive across MLT’s key markets, with strengthening to take place in Australia and China’s tier-1 cities. He also estimates about S$700 million to S$2.2 billion in debt headroom to support the trust’s acquisitions going forward.
As UOBKH analyst Jonathan Koh thinks compressed capitalisation rates, rising interest rates and equity market volatility has led to a “difficult environment to grow via acquisitions”, the analyst is expecting MLT to place more emphasis on redevelopment projects in the near term.
This could include the redevelopment of 51 Benoi Road, which is scheduled to compete by Q4 of FY2025, as well as the planned modern ramp-up logistics property in Subang Jaya. MLT intends to build it on 2 parcels of land it recently acquired for RM65.6 million (S$21.2 million).
DBS analyst Derek Tan likes MLT for its robust financial metrics but foresees upward pressure in refinancing rates in the near term - with new AUD and Korea loans possibly at about 4 per cent, and Singapore loans at 3 per cent.
Tan nonetheless believes MLT’s high hedged rates of some 80 per cent will “substantially shield” the trust from higher debt obligations in the medium term.
“With macro uncertainties and a global slowdown, we have seen some strength in MLT’s share price recently due to increased allocations into ‘defensive’ subsectors. Given its strong visibility income and a high income hedged ratio, we believe that MLT will stand strong in the midst of volatility,” said Tan in a note on Friday.
Units of MLT were up S$0.02 or 1.2 per cent at S$1.73 as at the midday trading break on Friday.
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