INITIATE COVERAGE
Global Logistic Properties (GLP SP)
Buy | Price/Tgt: S$2.01/S$2.40 | Mkt Cap: S$9,350.6m
Metamorphosis Into A Global Fund Manager
GLP is a fund manager, developer and owner-operator of modern logistics facilities. As of 30 Sep 16, GLP owned and operated a global portfolio of 52m sqm (560m sf) that caters primarily to domestic consumption. GLP’s US$39b fund management platform is a key area of growth going forward.
· Initiate with BUY and a target price of S$2.40, pegged to a 22% discount (in line with historical discount to our RNAV of S$3.06). We adopt a conservative RNAV based-valuation methodology instead of a riskier EV/AUM approach with a long gestation period of 5-10 years.
· Transformation into an asset-light model could see valuation expand to S$4.25/share, based on an EV/AUM of 0.48x (in line with that of fund management peers). Global Logistic Properties (GLP) could further unlock value by setting up income funds/REITs to monetise its China and Japan assets. We estimate that the monetisation of GLP’s assets in China and Japan could be deployed to grow the AUM by another US$30.8b over the next 5-10 years (8.3% CAGR). Recall that GLP developed the AUM business from the ground up to nearly US$38b (US$27b invested) in five years.
· Attractive 43% discount even after pricing in a takeover premium of 20%. A takeover bid would be unsurprising to a long-term investor given the abovementioned scalability of the fund management business. GLP has clarified that it was not in talks with the consortium (Hillhouse Capital, China Investment and Hopu Investment) mentioned in recent media articles. However, we would not dismiss either a privatisation bid or a scheme of arrangement (a la ARA Asset Management) given major shareholder GIC’s recent S$3.7b purchase of a European portfolio, a geography where GLP has been alluding to expanding into as part of its diversification strategy.
· Continued demand for modern logistics space in China from e-commerce players. We expect e-commerce growth to continue underpinning demand for modern logistics facilities in China, where such tenants account for 25% of GLP’s leased area. iResearch estimates China’s online shopping market would grow at a CAGR of nearly 23% in 2016-18, outpacing the US’ e-commerce growth of 12% (emarketer.com estimate). Moreover, existing logistics facilities in China largely fail to meet modern requirements, with 70% built before 1990. Thus, oversupply concerns may be overstated in the face of pent-up demand. China is GLP’s largest market, accounting for 56% of book value.
· Near-term China supply fears could be overblown. Investor concerns have centred on the oversupply of logistics space in China, particularly in secondary cities like Shenyang. We note that secondary cities account for only 11% of GLP’s total exposure to China. With market leader GLP limiting its development activities in these markets, its peers have started to follow suit, and management believes the situation will stabilise over the next 12 months.
