Global Logistic Properties Ltd (SGX: MC0) is one of the most beloved companies amongst the 30 components of the Straits Times Index (SGX: ^STI). Why do I say that? If GLP’s profit for its financial year ended 31 March 2014 were adjusted for non-cash fair value gains from its investment properties (after the adjustment, investors would be looking at the company’s profit stemming from its core operational activity of providing logistics services), it would result in the company carrying a price/earnings (PE) ratio of 33 times based on its close at S$2.79 per share yesterday. That’s a high…
Global Logistic Properties Ltd (SGX: MC0) is one of the most beloved companies amongst the 30 components of the Straits Times Index (SGX: ^STI). Why do I say that?
If GLP’s profit for its financial year ended 31 March 2014 were adjusted for non-cash fair value gains from its investment properties (after the adjustment, investors would be looking at the company’s profit stemming from its core operational activity of providing logistics services), it would result in the company carrying a price/earnings (PE) ratio of 33 times based on its close at S$2.79 per share yesterday. That’s a high valuation that is awarded to market darlings.
But, that’s also a sign of the company having high expectations built into its share price and thus makes it important for the company to be able to continue growing. With GLP releasing its latest first quarter results just yesterday and experiencing a 12% decrease in profit, let’s take a deeper look into its quarterly report card.
The quarterly financials
For the quarter ended 30 June 2014, GLP saw its revenue grow by 18% year-on-year to US$169.3 million. Growth can be seen across all three of the company’s geographical markets, which are namely China, Japan, and Brazil. The last of the trio – Brazil – had experienced the fastest revenue growth as revenue from the country increased from US$1.85 million to US$7.68 million. This is mainly due to contributions from properties which were newly acquired from BR Properties in June 2014.
But despite the top-line growth, GLP saw its bottom-line (known as PATMI – profit after taxes and minority interests) drop by 12% year-on-year to only US$179.4 million. This was mainly because of a huge jump in profit accruing to minority interests after a consortium of investors had bought a 24.4% stake in GLP China; the investment had carved away a significant portion of profit from GLP’s shareholders as GLP China is a big contributor to GLP’s overall business.
In addition, losses in foreign exchange and financial derivatives also increased GLP’s net finance costs from US$8.76 million a year ago to US$26.4 million. This naturally heaped more pressure on GLP’s bottom-line.
With the 12% decline in net profit, GLP’s earnings per share also slipped by 12.9% to 3.58 US cents.
On a brighter note, the company’s balance sheet is still relatively strong. Its net debt (total borrowings sans cash) to equity ratio had also improved from 11.7% a year ago to 7.3%. The improvement had been mainly due to the capital injection by the consortium of investors into GLP China.
Although GLP saw a dip in its performance for this quarter, its prospects for the long term is still looking very attractive.
For instance, the company had just announced yesterday that it has formed a strategic partnership with CMSTD, one of China’s largest state-owned warehouse logistics provider, to develop the Chinese logisticd sector. The partnership gives GLP access to more than 9 million square metres of land resources that CMSTD has (for some perspective, the total land area in GLP’s Chinese portfolio stood at 19.4 million sqm as of 30 June 2014) . In fact, GLP and its new partner are set to start the development of 2.7 million sqm of land very soon.
Meanwhile, the company’s portfolio is also growing in Japan, albeit at a much slower pace than China. The company had completed two more properties in Japan, bringing the total to 87. In Brazil, GLP’s acquisition of BR Properties has nearly doubled the value of its properties in the country compared to a year ago; this gives the company a commanding position in the logistics space in Brazil.
All told, the land area of GLP’s China portfolio had grown by 24% compared to a year ago. The corresponding figures for Japan and Brazil are 15% and 67% respectively.
As long as global trade and e-commerce is growing, these can provide powerful tailwinds for GLP’s growth. But, there’s one important thing investors should note: GLP’s slowing margins. For instance, its profit (before fair value gains are recorded) made up 62% of its revenue in the quarter ended 30 June 2014; a year ago, that percentage was 77%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn't own any shares of companies mention above.