Why Mapletree Logistics’ China properties may be immune to the US trade war

China yuan coins

Logistics-related securities may have faced pressure amid the U.S. trade war with China, but even with its recent purchases of China properties, Mapletree Logistics Trust may not see much of a pinch, OCBC said in a note on Thursday.

The U.S. has launched a trade war with China, imposing 25 percent tariffs on US$50 billion worth of goods imported from the mainland; China has retaliated and in response, U.S. President Trump has threatened even more tariffs on Chinese goods. Additionally, on Friday, the European Union’s retaliatory tariffs will take effect on select U.S. goods after the Trump administration imposed tariffs on steel and aluminum imports from U.S. allies, claiming it was necessary for national security reasons.

MLT received 6.3 percent of its net property income (NPI) from China in fiscal 2018, and it also recently completed the acquisition of 50 percent stakes in 11 logistics properties in China, OCBC noted. It estimated that after the acquisitions, China would contribute 11 percent of it pro forma fiscal 2018 NPI.

“While this may raise some concerns over MLT’s increased exposure to China amid the current trade spat, we believe a significant portion of its underlying end-user revenue from China is derived domestically due to the fast growing e-commerce sector,” OCBC said. “Hence, we see limited impact on MLT’s earnings.”

It noted that in the newly acquired China properties, JD.com and Cainiao Smart Logistics Network, the logistics arm of Alibaba, are the largest tenants, with each contributing around 19.3-20.8 percent of the portfolio’s gross revenue. JD.com’s business is primarily conducted in China, it noted.

But OCBC tripped its fiscal 2019-20 distribution per unit forecasts by 0.8-0.9 percent each due to the acquisitions and the recent private placement exercise.

In addition, despite the strong e-commerce growth outlook in China, it trimmed its fair value to S$1.34 from S$1.44.

“Given the uncertainties and negative sentiment surrounding the ongoing trade tensions, we adopt a more conservative stance,” it said. It kept a Buy call.

The REIT ended Thursday flat at S$1.22.


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