Global Logistic Properties' profits soared 33.3% to US$204m

Thanks to its strong investment assets.

According to Phillip Securities Research, GLP announced 1Q14 PATMI of US$204.0mn, up 33.3% y-y, mainly on higher fair value gain recognized for investment assets. Excluding revaluation, PATMI fell by 39.6%, mainly due to previous monetization of 33 stabilized Japanese properties into the J-REIT. 

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Revenue reported US$173.2mn, down 19.6% y-y. The drop in Japan rental income resulting from property monetization and a weaker JPY is partially offset by the strong growth in China rental income (+40% y-y).

The management kicked start project development of 0.73 mn sqm GFA in China, ahead of the whole year target start of 2.5 mn sqm, Another 0.01 and 0.05 mn sqm GFA development starts are booked in Japan and Brazil respectively.

Project completion in China trailed our expectation, mainly because of redesigning some properties to multi-floor ones.

GLP kicked a strong development start in China in 1Q14, after which the nation’s macro picture turned from recovery to a slowdown.

The management sees no indication that customer demand changes GLP’s future development plans, though it took the customers ”a little longer to make decisions”.

Retail sales in China still maintained a robust double digit growth, but the general slowdown compared to previous years does add uncertainties to logistic demand in the near term.

Therefore we would not rule out the possibility that the management scalesback project starts in FY14. In addition, possible further Yen deprecation could also weigh on GLP’s valuation in the near term.

Despite saying these, we stay positive on GLP’s longer term growth prospect for its market leader position and strong business fundamentals.