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Analysts are generally positive over Global Logistic Properties’ (GLP) announced acquisition of a 19.9 % stake in Shenzhen Chiwan Petroleum Supply Base Co (SCPSB). They opine that the S$90 million (HK$539.2 million) price tag is reasonable and will create synergies for both companies. The acquisition is to be done through GLP’s wholly owned subsidiary, China Logistics Holding. According to GLP’s announcement, SCPSB reported a net profit of 112 million yuan (S$22 million) during the last fiscal year, with a net profit margin of 34 per cent. The HK$539.2 million price tag that GLP is paying for SCPSB, works out to HK$11.75 per acquired share, and is a 1.4 discount to SCPSB’s HK$11.92 closing price on Dec 21. GLP stated that it would use proceeds from its recent initial public offering (IPO) to pay for the acquisition.

SCPSB is the parent company of China logistic facilities player BLOGIS. BLOGIS is the 2nd largest logistics facilities player in China after GLP. According to a GLP statement, BLOGIS owns 12 properties at eight key logistics hubs in China spanning cities such as Shanghai, Tianjin and Chengdu. Their assets currently comprises 6 completed logistics properties (total gross floor area (GFA) of 620,000 sq m), 2 properties under construction (total GFA of 160,000 sq m) and 4 parcels of land banks (with planned GFA of 370,000 sq m).

JP Morgan kept its Overweight call on GLP with a target price of $2.90. JP Morgan notes that as SCPSB also owns businesses in the offshore petroleum logistic and offshore engineering sectors, the SCPSB acquisition would add to the proposed acquisition of a 53 per cent stake in another major developer of modern logistics facilities in China and further cement the group’s leadership position in China.

Citi Investment Research also has a Buy call on the stock with a target price of $2.80. Citi opined that the acquisition demonstrated GLP management’s ‘ability at acquiring prime logistics properties at reasonable cost’. They added that though the deal was unlikely to have a large impact on GLP’s earnings, the deal will nonetheless link China’s two largest modern logistic facilities providers, and create synergies. Said Citi: “Although the initial net asset value/earnings impact does not look significant, we believe their cooperation should help the combined group dominate their market share in China.

This would make it difficult for potential newcomers, including ProLogis which could re-enter the China market after February 2011, to catch up with GLP’s scale in China.” The acquisition announcement comes on the heels of recent reports that GLP failed to reveal in its IPO prospectus that it had a non-compete agreement with United States-based rival ProLogis, which was due to expire in February 2011. Under the non-compete agreement, ProLogis cannot acquire or develop logistic distribution facilities in China until February 2011. In return, GLP undertakes not do the same in the Japanese market. GLP had since replied that the non-compete agreement was ‘not material’ to its business and thus did not need to be disclosed in its prospectus.

GLP – whose majority shareholder is the Government of Singapore Investment Corporation – raised $3.9 billion in its October IPO (priced at $1.96), making it Singapore’s largest IPO since Singapore Telecommunications (SingTel) listed in 1993. In November 2010, GLP announced that net profit for its second quarter more than trebled to US$85.4 million from a year ago. This came on the back of higher rental income as it increased its leasable space in China. A revaluation gain and a stronger yen also helped to push up earnings. Revenue for the period ended Sept 30 increased 14 per cent to US$113.3 million from $99.8 million. On 24 Dec 2010, GLP’s share price closed up 0.9%, or two cents, at $2.18.