The team at UBS Global Research has upgraded its call on MLT to “buy” from “neutral” as it sees value emerging after the sell-off seen in MLT’s units year-to-date (ytd).
At its latest results briefing, MLT’s management remained cautious on its guidance for the FY2025, as it sees lingering pressures from foreign exchange (forex), China and interest rates to likely persist.
“Undoubtedly, the market expects weakness to come, judging by the -22% ytd share price correction of MLT, which is widest among large cap Singapore REITs (S-REITs). But we think the weakness could already be in the price,” says the team in its May 6 note.
Based on UBS’s estimates for FY2025, MLT’s dividend yield is at 6.1%, putting it above the estimated yields of CapitaLand Ascendas REIT and Mapletree Industrial Trust (MINT) at 5.8% and 5.9% respectively.
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As such, the UBS team sees “value emerging” for MLT.
That said, the team has lowered its DPU estimate for FY2025 to FY2027 by 3% to 6%. Their target price has also been lowered to $1.56 from $1.78.
Among the S-REITs, they prefer CLAR, Frasers Centrepoint Trust (FCT), MINT and MLT in that order.
Analysts from Citi Research, DBS Group Research and UOB Kay Hian have kept their “buy” calls on MLT after its “resilient” performance.
Citi analyst Brandon Lee notes a “surprisingly resilient” Chinese portfolio with MLT’s marginal increase in occupancy for the 4QFY2024, “benign fall” in its valuations for FY2024 and positive reversion in the country’s Tier 1 cities.
That said, an uncertain 12-month outlook in China, coupled with higher cost of debt and forex weakness may cloud MLT’s DPU outlook. This, however, can be mitigated by organic growth in still-healthy markets like Hong Kong, Japan and Singapore as well as executing DPU-accretive portfolio reconstitution actions.
While Lee has kept his target price at $1.85, he sees a positive impact on MLT’s unit price after its 4QFY2024 DPU surpassed expectations.
DBS Group Research analysts Derek Tan and Dale Lai also highlight MLT’s “resilient” occupancy with steady organic growth.
“Occupancy rates are projected to remain stable, demonstrating resilience amid economic uncertainties,” they write. “We believe that high earnings visibility is a welcome trait for MLT in the face of ongoing economic uncertainties, implying that the REIT's premium to net asset value (NAV) is fair.”
“While China ([about] 20% of revenues) presents challenges for occupancy rates, we expect overall performance to remain resilient given MLT’s diversified platform with [around] 80% of revenues from regions with stable demand-supply dynamics,” they add.
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MLT, which is one of Asia’s leading logistics-focused REIT, is set to get bigger with its pipeline of properties. The properties, that’re estimated to be over $2 billion, are ready to be injected into the REIT over time.
“This visibility and availability of a pipeline is a distinct advantage not shared by peers,” say Tan and Lai.
While MLT’s FY2024 DPU stood ahead of their expectations, their target price is lowered to $1.75 from $1.88 as their earnings forecasts are lowered.
“Our assumed discount rate is 6.8% (risk free of 3.5%). Our target price implies a target yield of FY2024 yield of 5.0% and a P/NAV of 1.3 times,” they say.
“Currency fluctuations and interest rates are key concerns for management in FY2025,” they add.
To UOB Kay Hian analyst Jonathan Koh, any downside in MLT’s 4QFY2024 numbers were limited by the REIT’s higher yield.
He also notes the REIT’s positive rental reversions during the quarter, driven by its Singapore portfolio and offset by its Chinese portfolio.
“MLT’s properties in Tier 1 cities, such as Shanghai and Guangzhou, are well located and resilient. Properties in Tier 2 cities suffered negative rental reversion at low teens and the weakness is expected to persist,” he writes.
Koh has kept his DPU forecast for FY2025 unchanged for now as he has already factored in weakness from Mainland China, which accounts for 18.8% of MLT’s total portfolio valuation.
His dividend discount model (DDM)-based target price, which is raised to $1.89 from $1.87, is derived from a cost of equity of 7.0% and terminal growth of 2.8%.
Units in MLT closed 4 cents higher or 2.96% up at $1.39 on May 6.
