Brokers’ take: Maybank lowers target on MIT as tenant bankruptcy adds to headwinds

MAYBANK Securities has lowered its target price on Mapletree Industrial Trust : ME8U 0% (MIT) to S$2.30 from S$2.45, while maintaining its “hold” rating on the counter, after news of the trust’s third-largest tenant initiating bankruptcy proceedings. 

In a report on Tuesday (Jun 6), analyst Krishna Guha said the latest development poses potential downside risks to MIT’s data centre assets, and adds to the research house’s concerns over a slowdown in local manufacturing. 

Maybank’s lower target price on MIT accounts for reduced distribution per unit (DPU) estimates and medium-term growth rate assumptions “mainly due to growth headwinds emerging in the data centre segment”.

The research house has cut its forward DPU by 1 per cent to 3 per cent after factoring in the potential impact from the tenant bankruptcy, which more than offset estimated DPU accretion from MIT’s proposed Osaka acquisition.

Guha said that the news that MIT’s tenant had initiated bankruptcy proceedings, or the timing of the announcement, was “not surprising” given the recent trend of negative headlines reported by MIT’s peers and other tenants. 

“However, it raises concerns on whether the data centre growth story is beginning to unravel,” he said. 

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Although Guha believes MIT should be able to mitigate the negative impact from its tenant’s bankruptcy thanks to its diversified tenant base and portfolio, he cautioned of wider industry headwinds, which may in turn affect overall demand for industrial space. 

“While we recognise MIT’s relatively attractive valuation among the large-cap industrial Reits (real estate investment trusts), the sharp and prolonged slowdown in the local manufacturing sector is likely to weigh on demand for industrial space, especially the high-tech segment, in our view.” 

MIT was flat at S$2.22 as at 1.05 pm on Wednesday.