Global Logistic Properties

Phillip Securities Research on 27 May 2013

GLP announced FY13 Patmi (profit after tax and minority interests) excluding revaluation of US$350 million, up 11.4 per cent y-o-y. Total revenue reported was US$642 million, up 13.5 per cent y-o-y mainly on strong rental growth in China from newly completed properties.

The company met its FY13 whole-year target of 2.0 million square metres GFA (gross floor area) development start, and targets another 2.5 million sq m development start in FY14. This further consolidates their market leadership, while enhancing network effect and economies of scale.

The company also targets 0.4 million sq m and 0.31 million sq m GFA development starts respectively in Japan and Brazil, with an estimated gross project cost of US$960 million. Following the earlier monetisation of 33 properties to J-Reit, GLP has US$1.96 billion cash on hand and a low net debt-to-asset ratio of 8.2 per cent.

Management indicated monetisation of the remaining Japan stabilised properties could be considered before borrowing further debt to finance development projects.

The company has strong business fundamentals. The strong cash position and potential capital recycling through Japan property monetisation would ensure rich liquidity for future development.

Some developments previously scheduled for completion in FY13 were delayed to FY14.

We, therefore, expect strong project completions in the following few quarters and hence significant fair-value gain on project completion in FY14. Leasing activities in China remain upbeat, driven by 3PL and e-commerce, despite the nation's retail growth moderating slightly in the first four months of 2013. Potential further weakening of the yen could weigh on GLP's Japan rental income and exert downward pressure on the property valuation through currency translation. There is currently no concrete evidence that the Japanese government's aggressive monetary loosening has stirred up the nation's real economy.

We revise our FY14 target price upwards from S$2.77 to S$2.90. This is equivalent to a capital gain of 1.4 per cent in addition to a 1.4 per cent return on dividends, calculated based on the closing price of S$2.86 as at May 23.

Despite our liking GLP's strong business fundamentals, it could have been more or less fully reflected by the current share price. Therefore, we maintain our "neutral" rating but reserve the possibility of raising it to "accumulate" should the following events occur:

1) Exchange rate of JPY against SGD exhibiting mean reversion;

2) The economic recovery of China regaining momentum, therefore, improving market sentiment;

3) The aggressive monetary loosening by Japanese government successfully reviving Japan's economic outlook or compressing cap rate;

4) A detailed examination on GLP's key development pipeline information anchoring a better-than-expected projection. This may be disclosed in GLP's upcoming FY2013 Annual Report.