Trade tensions put heat on Mapletree Logistics Trust's Chinese portfolio

China contributed 6.3% to its net property income in 2018.

Mapletree Logistics Trust (MLT) recently bought a 50% interest in each of 11 logistics properties in China on 6 June for a total acquisition cost of RMB1b, or $213.9m. Its sponsor Mapletree Investments Pte. Ltd. holds the remaining 50% stake.

“The ongoing trade friction between the US and China has undoubtedly spooked the equity markets and also casts a pall over the outlook of global trade and correspondingly logistics-related securities,” OCBC Investment Research analyst Andy Wong Teck Ching said. “We note that MLT derived 6.3% of its net property income from China in FY2018.”

Following the said acquisition, China is expected to contribute 9% of MLT’s pro forma portfolio valuation and 11% of its pro forma FY2018 NPI, as compared to 5% and 6% previously, respectively.

“Whilst this may raise some concerns over MLT’s increased exposure to China amidst 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,” Wong said.

JD.com and Cainiao Smart Logistics Network Limited, the logistics arm of Alibaba, count as the largest tenants of the portfolio, contributing 20.8% and 19.3% to gross revenue, respectively.

Wong said he sees limited impact on MLT’s earnings. “For example, JD.com’s business is primarily conducted in China. After taking into account the aforementioned acquisition and recent private placement exercise (gross proceeds of $220m) to finance this purchase, we trim our FY2019 DPU forecast by 0.9% and FY2020 forecast by 0.8%,” he added.

Moreover, e-commerce sales in China are projected to jump at a CAGR of 16% from US$449b in 2017 to US$813b in 2021, according to Euromonitor and Colliers International.

However, Wong said they are adopting a "more conservative stance" given the uncertainties and negative sentiment surrounding the ongoing trade tensions.