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GLP: A Good Business At An Average Price
Tradeable, Tradeable Ideas | 23 June 2014
By: Lim Si Jie
Articles (169) Profile
  1. Strong operational performance for GLP in FY 14.
  2. China consortium agreement enhances access to land, leasing demand and new business opportunities.
  3. GLP’s fund management platform continues to grow steadily.

Strong Operational Performance
Global Logistic Properties Limited (GLP) reported strong operational performance for the year ended 31 March 2014 (FY14). Pro-forma FY14 earnings (PATMI) rose 31 percent to US$685 million, underpinned by robust development momentum and rent growth in China.

FY14 Group revenue for GLP was US$598 million. This was 7 percent lower than last year, mainly due to the sale of properties to GLP J-REIT and foreign exchange movements. Adjusting for three these items, Group revenue increased by 20 percent, boosted by the lease-up of development projects and continued rental growth in China.


Source: GLP Financial Statement

China continues to be the key driver of GLP’s growth, with China earnings growing by 42 percent year-on-year. Adjusted for the sale to GLP J-REIT and FX movements, FY14 Group EBIT and earnings were up 22 percent and 31 percent respectively. GLP’s development platform continues to deliver continuous growth, generating US$205 million of value creation from development (pre-tax revaluation gains) in FY14.

FY14 was a record year of leasing for GLP in all markets, driven by significant demand for modern logistics solutions and growth in domestic consumption. Fund management income continued to increase as the size of the platform expanded.

China Consortium Agreement
GLP shareholders approved its China consortium agreement in April 2014. Following the transaction, the Chinese investor consortium will take up approximately a one-third stake in GLP’s China business.

The recently announced China consortium agreement enhances GLP’s access to land, leasing demand and new business opportunities. Given the compelling opportunities across all of GLP’s markets, GLP’s management is confident that growth will accelerate.

GLP targets to initiate US$2.7 billion of development starts in China, Japan and Brazil in FY15. GLP will raise its China development starts growth target to 30-40 percent annually, up from 20-25 percent, while also accelerating growth in Japan and Brazil.

Growing Fund Management Platform

Source: GLP Financial Statement

GLP registered strong growth in fund management fee income as the size of its platform expanded. Fund management revenue in Q4FY14 doubled year-on-year to US$25 million. This comprised asset and property management fees of US$10 million and development fees of US$15 million. Fund fees were US$68 million in FY14, up 112 percent year-on-year, and should continue to grow consistently with the strategic expansion of the fund management platform.

As of 31 March 2014, total assets under management (“AUM”) amounted to US$11.1 billion, compared to US$8.4 billion last year. Out of the US$11.1 billion, US$6.9 billion has been invested, with a further US$4.2 billion of uncalled capital. Future growth is also expected from the US$4.2 billion of uncalled capital.

As of April 2014, 93 percent of CLF Fund I (total equity commitment: US$1.5 billion) has been invested or allocated. GLP Japan Development Venture also continues to make good progress, with over 82 percent (total equity commitment: US$1.0 billion) invested or allocated.

Bullish 

GLP’s margins are much stronger than the industry average. The industry average margins pale in comparison, especially the five year average. This represents a comparative advantage which GLP holds over its peers.

GLP is not only managing its core operations well, it is also growing its fund management platform steadily. Given the strong positive business outlook for GLP in the upcoming FY, I remain bullish on GLP despite the slight premium that investors have to pay.

To quote Warren Buffett, “I would rather buy a good business for an average price than an average business for a cheap price”.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.


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