Thursday, August 25, 2016

MQ reiterates ‘Outperform’ rating on SingPost

Tapping into ASEAN e-commerce growth
E-commerce still underpenetrated in ASEAN: MQ estimates that ASEAN e-commerce could grow to $88bn by 2025 (32% CAGR), as penetration is still low at 0.8% (vs. 6-8% in China, Europe and US), per Google/Temasek. MQ believes that SingPost will stand to benefit given the high barriers to entry and scale of operations.
Alibaba the key growth driver: SingPost is Alibaba/Cainiao’s preferred logistics partner in ASEAN, especially since Alibaba purchased a 10% stake. Cainiao is Alibaba’s logistics arm, which was set up in 2013 due to the large volumes it had to handle. SingPost saw ~20-30% revenue growth in international mail (20% of revenue) in 3Q-1Q17 from this partnership, and MQ believes that this trend will continue.
Unique end-to-end e-commerce strategy: In addition to its deal with Alibaba, SingPost’s strategy to be the end-to-end e-commerce logistics provider for monobrand customers sets it apart from other, smaller courier players and slow-moving national postal sectors. It currently has sticky partnerships with 120 brands globally, including Hugo Boss and Tory Burch post the Trade Global acquisition, which will play a part in driving logistics revenue.
MQ’s earnings and target price revision
Post model revision, MQ lowers EPS by 15.1% in FY17E and 13.5% in FY18E to factor in lower operating profit margin before achieving economies of scale, and hence also revise its profit taking down to S$1.75 from S$2.15.
Price catalyst
12-month price target: S$1.75 based on a Sum of Parts methodology.
Catalyst: Appointment of new CEO, e-commerce growth in the region

Monday, August 15, 2016

Global Logistic Properties - Strong development profit and fee income

Results in line, accounting for 25% of our FY17 core net profit 
1Q17 revenue rose 9% yoy to US$207m, net profit fell 24% yoy to US$203m on lower revaluation surplus, forex impact, partly offset by better operating results. Excluding revaluations, bottomline of US$69m, +23% yoy, is in line with our expectations. Although portfolio occupancy fell on slower leasing in China and Brazil, same-store NOI and rent growth rose c.8% and 9.6% on higher leasing demand of 2.5m sq m. There was higher development profit of US$65m, largely from Japan and increased fee income. 
Strong performance from Japan and the US
Japan and the US performed strongly with rent growth of 2.1%/20.7% while occupancy was high at 94-99%. There was added operating and fee income from its share of GLP US Income Partners II. Given the strong sector fundamentals in the US, we expect the strong performance to continue. In Japan, it has achieved 16%/58% of its development starts and completions and this will underpin rental and development income. 
China faces some near term headwinds
New and renewed leases in China totalled 0.92m sq m in 1Q with a 60% retention ratio. Domestic consumption remains the key driver of demand. However, occupancy dipped to 86% on slower leasing volumes. This was offset by effective rent growth of 6.2%, with stronger performance in Tier 1 cities. On outlook, there continues to be short term oversupply in Tier 2 cities with drags on rents and occupancy. Management expects this to be digested over the next 12-18 months.   
Expanding fee income platform
Fee income rose 17% yoy to US$42m, on higher asset and property management fees, led by higher AUM of US$36.5m. With an additional US$12bn of uncalled capital, we expect recurrent fee income to continue expanding as this capital is deployed. It is also looking at setting up a China income fund.   
Strong balance sheet
Balance sheet is healthy with look-through net debt to asset ratio of 0.28x. To date, GLP has commenced 20% of its US$2.1bn of development starts and completed 18% of its targeted completion of US$1.5bn. This funding headroom provides the group with deep capacity for development activities as well as to evaluate potential new acquisition opportunities such as in the US. 
Maintain Add
We tweak our FY17-19 estimates for the latest results and leave our RNAV-backed target price of S$2.72 unchanged. Given its position as a market leader in China, vast landbank, strong execution track record and expanding fund management platform, we believe GLP will continue to create value and earnings growth. Key catalysts are acceleration in fund management activity and improved rental outlook. Risk to call includes slower than expected China market.   

Tuesday, August 02, 2016

Mapletree Greater China Commercial Trust - Staying resilient

Buoyed by FW and SP 
MAGIC reported 1QFY17 revenue of S$85m and NPI of S$69.4m, up 12% and 11% yoy, respectively, as higher Festival Walk (FW) and Sandhill Plaza (SP) contributions offset lower Gateway Plaza (GW) performance. After netting off higher interest expense (from the acquisition of SP), distribution income grew 10.6% yoy to S$51.3m. 1QFY17 DPU of 1.85 Scts, +9.1% yoy, was in line with our expectations, making up 24.5% of our FY17 projection. There was little overall forex translation impact during the quarter. 
Reopening of cinema to boost entertainment and F&B businesses
FW’s revenue and NPI rose c.10%/9% yoy to S$60m/S$47.1m, thanks to positive rental reversion of 11-13% for its office and retail renewals. This was despite a 13% drop in tenant sales and shopper traffic with ongoing renovations of a new cinema tenant and a challenging HK retail environment. The cinema operator reopened in June; this should translate to higher entertainment and F&B contributions. With a remaining 23% of leases at the property to be re-contracted this year, we expect rental uplift to remain robust. 
More competitive operating environment for GW
The weaker showing at GW was offset by a full quarter’s contributions from SP. GW reported an 8% dip in NPI to S$16.9m due to i) a decline in occupancy to 95% owing to the more competitive leasing environment with high incoming supply, ii) impact of VAT implementation, and iii) a depreciation in RMB. 1QFY17 rental uplift was a modest 6% and we expect rental growth to remain moderate, although completion of the AEI which added 800 sqm of F&B space should enhance tenant experience. 
SP enjoyed strong occupancy with good rental uplift
On the other hand, SP reported a 28% improvement in renewal rents and full occupancy on healthy demand for business parks space during the quarter due to a decentralisation trend in Shanghai. With cost savings, favourable tax incentives and improved accessibility, we anticipate this segment of the market to continue to perform well. 
Strong income visibility
To ensure good income visibility, MAGIC has increased the proportion of fixed rate debt to 80% and hedged 62% of its FY17 distributable income. Gearing is steady at c.40%. It has about 14% of its debt to be refinanced for the remainder of FY17. 
Maintain Add
We continue to like MAGIC for its resilient portfolio, underpinned by FW, and good earnings visibility. With gearing at 40%, we think there could be scope for new acquisitions in the medium term. We tweaked our DDM-TP to S$1.14 following this set of results. Given the total return upside of 13% to our TP, we maintain our Add call. Downside risks to our call include weaker than expected Beijing office leasing market.