Brokers' take: DBS lowers MIT target to S$3.05 after cutting earnings estimates

DBS has lowered its target price on Mapletree Industrial Trust : ME8U 0% (MIT) to S$3.05 from S$3.35 after cutting its earnings estimates on higher cost assumptions. It maintains a “buy” call on the real estate investment trust (Reit).

The new target price implies a target yield of about 4.8 per cent and a potential upside of 15.5 per cent from MIT’s last trading price of S$2.64 as at 11.40 am on Wednesday (Apr 27). The counter was up 0.4 per cent or S$0.01 at the time.

In a report on Wednesday, DBS said the rise in energy prices globally would have a negative impact on margins in the coming quarter when utility contracts are due for renewal in June 2022.

Utility costs – which DBS expects to rise 2 to 3 times when contracts are due – are estimated to be 1 per cent of MIT’s revenue. As such, DBS has cut its FY2023 estimates to account for the hike in utility costs.

Despite rising energy costs and interest rates, DBS expects MIT to remain resilient and have a steady growth profile amid the volatile market conditions.

The research team noted that a recent price correction had brought the Reit’s price-to-net-asset-value ratio down to 1.3 times, with forward yields of about 5.3-5.5 per cent that are close to average levels.

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MIT’s valuations also saw a S$87 million uplift from its US data centres as a compression in yields had offset the slight decline in valuations for its Singapore properties – largely due to shortening land tenures.

Moreover, occupancies in MIT’s portfolio are likely to remain resilient, supported by positive reversions as businesses expand. DBS also expects improved income visibility, given that major tenant AT&T has partially renewed its lease. AT&T is one of MIT’s top tenants — contributing 5.4 per cent to gross revenues.

On Tuesday, the Reit posted a 5.8 per cent rise in Q4 distribution per unit (DPU) to S$0.0349, from a DPU of S$0.033 in the year-ago period. This was largely due to the revenue contribution from its portfolio of 29 data centres in the US in July 2021, and full quarter revenue from the data centre at Richmond, Virginia, acquired in March 2021.