Global Logistic Properties - A more prudent approach


GLP’s 1Q16 core profit was fairly in line with our estimate, making up 20% of our FY16 forecast. The group enjoyed strong revaluation uplift from higher asset values as well as better rental performance, which helped offset the higher minority interest leakage at the bottomline. With increasing near term uncertainty in China, GLP lowered its FY16 China development growth targets by 21%. We cut our FY16-18 EPS estimates by 5-9% and reduce our RNAV-based target price to S$3.25. Even so, we stay positive on the longer term prospects of the modern logistics warehouse sector. Maintain Add.

1Q results driven by higher asset values
GLP posted 1Q16 net profit of US$268.1m (+49% yoy) on a 12% rise in revenue to US$190.2m. China reported a 50% jump in net profit to US$99m due to higher operating results, development gains from new completions and revaluation uplift from cap rate compression (25bp). Japan enjoyed a 20% hike in net profit to US$160m with the completion of two properties and revaluation gains from cap rate compression (11bp) while Brazil posted greater fair value gain as well as rent growth. New contributions from the US and lower net finance costs helped bolster the bottomline. Excluding revaluation gains and forex impact, earnings would have been US$56.6m, -7% yoy, i.e. c.20% of our FY16 estimates.

Lowering FY16 China development targets
The group recorded 1.1m sq m (+48% yoy) of new and expansion leases, largely in China (690k sq m) and Japan (80k sq m). There was same-store rent growth of 5.5-8.4% in China, Japan and Brazil while the US properties enjoyed 7.5m sq ft of new and renewal take-up and rent growth of 4%. Portfolio occupancy averaged 92% although China dipped 3% pts to 88%. With the increased near term uncertainty in China, GLP guided for lower development start and completion growth targets to 5%/12% to US$1.7bn/US$1.1bn respectively, while keeping its forecasts for Japan and Brazil. It still aims to complete US$8bn worth of projects in the next 3-5 years. Meanwhile, the purchase of its second US logistics portfolio should enhance GLP’s bottomline when the deal is completed by Nov 2015. The balance sheet is healthy with a see-through net debt to asset ratio of 14% post acquisition.


Technical Analysis
Daily Chart
Maintain Add
In our view, the longer term prospects of the modern logistics warehouse sector are intact in GLP’s key markets, led by strong domestic consumption and the lack of modern space. With the slower pace of China development starts and completion growth, we cut FY16-18 EPS by 5-9%. We trim our RNAV and target price (parity to RNAV) to S$3.25. (Read Report)

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Source : CIMB Research

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