As I was pondering over the markets recently. We start to see very quality assets that are starting to emerge.
Investment Themes that will do very well over the next few years are
1. Big Data (and its storage)
2. eCommerce (and its storage)
3. Frontier Markets (Myanmar)
4. Clean Energy (and its various components)
5. Urbanization of cities
Pointing to Theme 2 in particular - eCommerce
One particular company that caught my eye is Global Logistics Properties (GLP). GLP is a market leader in China with a large footprint worldwide in USA/ Japan/Brazil. Interestingly, GLP was a company born from the global financial crisis in 2008. It succeeded with the a management buyout of prologis assets with the backing of GIC.
Fast forward 8 years. The company was listed, and continue to flourish as a builder, asset manager and operator with high occupancy of its high tech logistics (glorified warehouse).
3 questions always come to mind when investing.
1. Does the company have a strong investment theme?
Yes. Being right in the heart of china where eCommerce is booming (think Baidu/Alibaba/JD.com/Tencent) - there is much opportunity to support all these companies who require the logistics know how as they advance towards selling their products
2. Does GLP have a moat?
Yes. The network effect has been much touted by the company itself. The network effect is the strength of a company that grows as its community grows larger. In this case, the network effect is relevant for the customer if he wants to say sell his product in different parts of China. GLP can help to provide a different cost package or an assistance to move the goods accordingly to different places.
3. Is the company highly leveraged?
To the contrary. No. Debt gearing is about 30%. Which is pretty reasonable and gives ample gunpowder should opportunity arises. The company also exercise prudence in terms of development - they cut back on capex from 1.7bln to 1.4bln (warehouse developments) as they are seeing logistic occupancy fall below 90%. Should it rises above 90% again (i.e. economy picks up). They will increase capex once more.
What is the worse that could happen?
China debt bubble implodes, causing a freeze up of capital flow, consumer shock, massive cutback on spending and job cuts - Financial Armageddon. Share price may fall to about 1.20.
Likely hood: Pretty low, but some adjustments within china are currently in place to mitigate this issue.
1.20 price is an even better price to buy a wonderful company.
Target price: 2.47
(Provided by DBS Vickers - https://www.dbs.com.sg/treasures/aics/EquityArticle.page?dcrPath=templatedata/article/equity/data/en/DBSV/012014/GLP_SP.xml)
(The author is vested with 3300 shares as of the time of writing)
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