Credit: Axisadman

By  Stanley Lim Peir Shenq, CFA  - April 5, 2016  |  More on:  MC0

Since peaking at a price of over S$3.00 in 2013, shares of  Global Logistic Properties Ltd(SGX: MC0)  have tumbled. At the time of writing, shares of the company are exchanging hands at S$1.94, up by a fifth from a 52-week low price of S$1.60.

Given the sharp decline in Global Logistic Properties&rsquo share price over the past three years, is the company possibly a bargain?

Global Logistic Properties, as its name suggests, has a focus on logistics facilities. The company is currently one of the largest owners and managers of logistics properties in the world. It has a strong presence in its four main geographical markets: China, Japan, Brazil, and the United States. In fact, the company has the largest base of modern logistics facilities in China, Japan, and Brazil when compared to its competitors there.

If we&rsquo re looking at earnings on a trailing basis, Global Logistic Properties does not look expensive. At its current share price, the company only trades at 11 times trailing earnings.  A peek at the trailing earnings multiple of one of the company&rsquo s largest competitors, the U.S.-listed  Prologis Inc, also lends weight to the view. Prologis is currently trading at 27 times trailing earnings.

But, just because a company has a lower valuation than its peer does not mean it really is undervalued. After all, its peer could be the one that&rsquo s overvalued.

For Global Logistic Properties, using the price-to-earnings ratio might not be the best measurement of value. The company, in a similar manner to Prologis, records significant fair value gains from its properties from time to time and these go into the earnings number used to calculate the PE ratio. Given that property revaluations do not generate recurring revenue and are non-cash in nature, using them to value the company may be dangerous for investors.

A more appropriate metric to value Global Logistic Properties would be the price-to-tangible book ratio given that the company is property-focused and regularly revalues its properties.


Source: S& P Global Market Intelligence

In looking at the history of Global Logistic Properties&rsquo price-to-tangible book (PTB) ratio in the chart above, I see an interesting story too. At the moment, the company&rsquo s PTB ratio of 0.8 is below the annual average PTB ratios in each year from 2010 to 2015. A PTB ratio of 0.8 also means that Global Logistic Properties is priced at a discount to its assets &ndash net of all liabilities &ndash by the market.

So, with Global Logistic Properties&rsquo low PTB ratio, is that a sign that it&rsquo s the real deal? Thing is, investors may not want to take the low PTB ratio as a sign that the company&rsquo s really undervalued and thus rush to buy the stock.

Often, the stock market is forward-looking in nature. The company&rsquo s low valuation right now could mean that the market&rsquo s seeing some storm clouds ahead.

Because of that, investors have to ask themselves: Why is the market negative about the company? Is the slowdown in the global economy going to hurt Global Logistic Properties&rsquo business? Are there property-price bubbles in the logistics sector in any of the four main geographical markets of the company? If there are, does that mean that the company may have overpaid for some of its property acquisitions in the past and thus might suffer write-downs in the future?

Investors would have to think through all these issues and risks before being able to come to a conclusion on whether Global Logistic Properties is indeed a bargain right now.