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Broker's take: UOB Kay Hian upgrades Mapletree Logistics Trust to 'buy'

UOB Kay Hian has upgraded Mapletree Logistics Trust (MLT) to "buy" and raised its target price to S$2.08 from S$1.65.

As at 11.20am, MLT units were up S$0.02 or 1.1 per cent at S$1.91, outperforming the Singapore market along with other property trusts, which are rallying in the wake of a surprise US Federal Reserve rate cut ahead of its March policy meeting.

In a Wednesday report, UOB Kay Hian analysts Jonathan Koh and Loke Peihao said the real estate investment trust (Reit) is less affected by the Covid-19 outbreak due to its tenant mix being more focused on domestic consumption and e-commerce.

MLT's exposure to domestic consumption such as food and beverage, consumer durables and healthcare-related tenants accounts for 70-75 per cent of its business. 

Meanwhile, 25-30 per cent of its business is related to export-oriented activities, most of which have to do with e-commerce.

Among its Chinese properties, the exposure to domestic consumption and e-commerce is higher at 85 per cent and 50-55 per cent, respectively.

Mr Koh and Ms Loke cautioned that there could be near-term weakness in China, particularly in its northern and midwestern sub-markets due to the high supply of warehouse space in those regions.

However, this is likely to be mitigated by MLT's growing revenue exposure to e-commerce in China which grew from 18 per cent in June 2018 to 50-55 per cent in December 2019, they added.

With MLT added to Singapore's Straits Times Index in December 2019, the analysts noted that could be followed up with a possible inclusion in the MSCI Singapore Index, which is due for review in May. Inclusion in the MSCI Singapore Index is likely to increase trading liquidity and lower bid-ask spreads.

MLT is already a component of the FTSE EPRA/NAREIT Index, which tracks the performance of real estate equities globally.