Mapletree Industrial Trust: A simple analysis.

I looked at the results of Mapletree Industrial Trust (MIT) briefly when it was announced a few days ago. It didn't interest me much and so, I did not blog about it. Someone asked me a couple of days ago what I thought of it and if I would invest in the trust now.

I like industrial properties S-REITs because they probably offer a more stable source of passive income compared to office S-REITs or retail S-REITs. At least, in theory, that's how it is. I also like First REIT which is into healthcare properties. I usually choose to invest in REITs with relatively higher yields compared to their peers in the same sector. After all, investing for income, distribution yield has to be a very important consideration.

MIT's distribution yield, at the last done price of $1.08 per unit and an annualised DPU of 7.72c, is about 7.15%. I cannot say I am excited by the yield. Investing in AIMS AMP Capital Industrial REIT, Cache Logistics Trust or Sabana REIT would give a higher distribution yield.

At $1.08, MIT is also trading above its NAV/unit of 95c (a rich premium of 13.7%). MIT has a gearing level of 36.1% and an interest cover ratio of 6.6x. Occupancy rate is at 93.2%. So, we could possibly see distributable income increasing again in future if occupancy rate improves. This could bump up DPU by a few % but distribution yield would probably not surpass 7.8% even so (ceteris paribus).

Some numbers for easy comparison:

AIMS AMP Capital Industrial REIT (20.5c):
Yield: 9.76%.
NAV/unit: 27c (24% discount).
Gearing: 32%.
Interest cover ratio: 5.7x.

Cache Logistics Trust (95.5c):
Yield: 8.18%
NAV/unit: 88c (8.5% premium).
Gearing: 26.4%
Interest cover ratio: 9.5x.

Sabana REIT (94.5c):
Yield: 9.3%.
NAV/unit: 98c (3.6% discount).
Gearing: 24.9%
Interest cover ratio: 7.9x

For people who were lucky enough to invest in MIT during at its IPO at 93c per unit and are still holding on, they would be enjoying a distribution yield of 8.3% which is more attractive. What about investing in MIT now? The biggest attraction in investing in MIT now is probably its pedigree. Mapletree is, after all, an arm of Temasek Holdings. Ironclad? Probably.

What about Mapletree Logistics Trust (MLT) which has expanded through acquisitions? Back in July 2010, I mentioned that I was wary of this trust because of its high gearing of 43.6%. The management has since brought the gearing level down through equity fund raising. Its numbers are now somewhat stronger:

Mapletree Logistics Trust (90.5c):
Yield: 6.85%.
NAV/unit: 85c (6.5% premium).
Gearing: 39.4%.
Interest cover ratio: 6.7x

MLT's distribution yield is even lower compared to MIT's. Its gearing is also higher. MLT's occupancy rate is >98% and has less room to increase revenue by filling vacancies compared to MIT. If I have to choose between MLT and MIT, the latter has my vote.

See MIT presentation slides here.
See MLT presentation slides here.

Golden Agriculture: Accumulation mode.

Anyone who has been following my blog recently would know that I have been accumulating shares of Golden Agriculture. Today, I bought more shares in the company at 66.5c a share. Do I intend to buy more if price should weaken? Yes, I would.

I am confident that the demand for crude palm oil (CPO) will strengthen as an edible oil as well as for the production of bio-fuel. With increasing affluence in Asia, especially in India and China, consumption is on an upward trajectory. With crude oil once again north of US$100 a barrel, we could see a stronger return of bio-fuel as a less expensive alternative. The fundamentals support higher CPO prices in future.

CPO has retreated to RM3,270 a ton from a high of RM3,960 in February. This is a decline of more than 17%. There are signs that the steepest part of the correction is over as price has managed to stay above RM3,230 a ton since late March.

Golden Agriculture's fortunes are probably the most levered to the price of CPO amongst the CPO companies listed in Singapore. Its share price took a dive from a high of 83c on 4 Jan 2011 to just 61c on 23 Feb 2011 for a loss of 26.5%. Devastating for anyone who got in at or near the high? Quite. Could price continue to move south?

Well, technically, I get the impression that the counter is oversold. As the ADX is at 11 and the DIs approximate 20, there is no strong trend or a trend per se. Volume has reduced again today as price found support at 66c and this is where the uptrend support which originated on 23 Feb is found. Stochastics is still in oversold territory and could we see it forming a higher low?

I always say that TA is about probabilities and never certainties. So, in the event that price moved lower, where is the next support? If the trendline support originating from the low of 23 Feb were to break, I see the next support at 65c. This is also a more ideal entry price I identified some time back when I was thinking of re-initiating a long position in this stock. More ideal because it was the top of a very lengthy basing process which started in early January 2010 and ended in October of the same year.

By drawing a Fibo fan using the low of 23 Feb and the high of 11 Apr, 65c is also where we would find the 78.6% Fibo fan line next week. For good measure, I used the low of 25 May 2010 and connected it to the low of 23 Feb 2011 which gave me another trendline support. Guess what. This line actually approximates the 78.6% Fibo fan line mentioned earlier.

65c could be the next strong support. If price were to test 65c, I am buying more.