Oversupply And Rising Costs Will Weaken Value But Allow Recovery

Key Takeaways

• Prolonged weakness in China, higher funding costs, and heavy reliance on external financing are pressuring revenue, margins, and future acquisition capacity.
  
• Rising regulatory and technology demands, oversupply risks, and softening e-commerce growth are raising costs and limiting rental growth and asset valuations.
  
• Strong e-commerce-driven demand, asset rejuvenation, sector and geographic diversification, robust rental trends, and sustainability initiatives underpin stable earnings and long-term growth prospects.

Catalysts

MLT, the first Asia-focused logistics REIT in Singapore, was listed on the SGX-ST Main Board on 28 July 2005.

• Persistent weakness in China, evidenced by continually negative rental reversions (around minus 9 percent) and high short-term lease exposure, threatens to drag down overall revenue growth and puts significant pressure on net property income, with little indication of recovery in the face of structural oversupply and economic stagnation in key Chinese logistics hubs.
  
• Structurally higher funding costs driven by rising global interest rates and expiring low-rate debt hedges will continue to erode net margins and depress distributable income per unit, given the trust's high leverage ratio near 41 percent and heavy reliance on external funding for both refinancing and future acquisitions.
  
• The growing requirement to upgrade aging warehouse assets in the face of tightening sustainability regulations and evolving customer technology needs will likely lead to increasing operating and capital expenditure, further constraining profit margins and stalling earnings growth across the portfolio.
  
• Slowing e-commerce momentum and the risk of logistics space oversupply, particularly in large gateways like Singapore and China with expanding vacancy rates and cap rate expansion, will cap rental growth prospects and depress asset valuations, directly constraining the trust's topline and net asset value trajectory.
  
• Stagnant organic rental reversions amid stiffer competition from newer, technologically advanced logistics facilities will undermine re-leasing power, weakening occupancy resilience and diminishing prospects for future distribution per unit increases, especially as a large share of expiries remains in volatile, underperforming markets.

Mapletree Logistics Trust Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mapletree Logistics Trust compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mapletree Logistics Trust's revenue will decrease by 0.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 25.2% today to 40.1% in 3 years time.
• The bearish analysts expect earnings to reach SGD 299.3 million (and earnings per share of SGD 0.05) by about July 2028, up from SGD 183.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.1x on those 2028 earnings, down from 33.5x today. This future PE is lower than the current PE for the SG Industrial REITs industry at 24.7x.
• Analysts expect the number of shares outstanding to grow by 1.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.56%, as per the Simply Wall St company report.

Mapletree Logistics Trust Future Earnings Per Share Growth

Risks

• The long-term trend of rising e-commerce and domestic consumption in Asia-Pacific is expected to drive sustained demand for modern logistics and warehouse space, supporting high occupancy rates and stable or growing revenues for Mapletree Logistics Trust.
  
• Proactive portfolio rejuvenation through divestment of lower-performing or outdated assets and reinvestment into higher-specification properties positions the company to maintain asset quality and competitiveness, which may help preserve or improve net margins and long-term earnings.
  
• Diversification across countries and sectors, with 85% of tenants serving domestic consumption and a strong presence in resilient sectors like F&B, fashion, and consumer staples, provides stability and reduces earnings volatility even amid global trade disruptions.
  
• High portfolio occupancy, positive rental reversions in most markets outside China, and a pipeline of committed leasing for new developments suggest continued strength in rental income, which can support distribution per unit and overall earnings growth.
  
• Significant strides in green financing, ESG initiatives, and portfolio sustainability enhancements position the company to tap into premium lease rates and attract high-quality tenants, supporting asset valuations and long-term revenue and profit generation.

Valuation

• The assumed bearish price target for Mapletree Logistics Trust is SGD0.98, which represents two standard deviations below the consensus price target of SGD1.32. This valuation is based on what can be assumed as the expectations of Mapletree Logistics Trust's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SGD1.63, and the most bearish reporting a price target of just SGD0.9.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SGD746.7 million, earnings will come to SGD299.3 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 8.6%.
• Given the current share price of SGD1.21, the bearish analyst price target of SGD0.98 is 23.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.