SINGAPORE (Jan 28): RHB Research and Maybank Kim Eng are maintain their “buy” ratings on Cache Logistics Trust (CLT) with the respective price targets of 81 cents and 85 cents, after the trust’s 4Q18 DPU dipped 5.9% to 1.502 cents due to lower net property income (NPI).
OCBC Investment Research, on the other hand, has downgraded its call from “buy” to “hold” with the downward revision of its fair value estimate to 76 cents from 78 cents previously.
In a Monday report, RHB analyst Vijay Natarajan says he continues to remain positive on CLT’s prospects despite lowering FY19-21F DPU estimates by 3-5% to factor in lower occupancies and lower rent growth in the latest quarter.
Despite a modest outlook for the logistics sector, the analyst believes CLT’s valuations are relatively attractive with yields of about 8% and 1.1 times book, with Korean asset acquisitions likely in the near term.
“With the challenging SG logistics sector, management remains keen on expanding its overseas portfolio (in particular in Australia and Korea) as a part of its diversification strategy. Cache is actively studying the South Korean logistics market with the view of potentially acquiring ARA’s Korean logistics assets. Currently, SG assets account for c.71% of its asset value, with assets in Australia making up the rest,” notes Natarajan.
Likewise, Maybank analyst Chua Su Tye sees compelling valuations for the trust at 8.2% dividend yields and 1.0 times P/BV, which are both at -1SD of their eight-year averages.
With the introduction of FY21 estimates, Chua has lowered DPU estimates by 4-5% to result in a lower 85-cent target price compared to 90 cents previously.
Nonetheless, he remains positive on CLT’s strong 4Q occupancies, and anticipates stronger NPI growth going forward as Singapore rents stabilise and leasing demand picks up.
“Assets under management (AUM) has been cleaned up with the divestment of its single China asset. Growth should accelerate following its Australian expansion,” says Chua.
Meanwhile, OCBC’s rating downgrade comes on a valuation basis after CLT outperformed the Straits Times Index after posting total returns of +.07% since the research house’s “buy” call on Aug 1 last year.
Its analyst Deborah Ong continues to like the trust for its management’s capital recycling efforts, as it remains focused on divesting short leasehold or lesser-performing properties, and on re-investing into freehold or long leasehold assets.
While Ong previously expected rents within CLT’s portfolio to bottom out at either end-2019 or early 2019, she now thinks a clearer pick-up in rental rates may only be seen closer to mid- to late-2019 instead.
“Leases representing 18.7% of CLT’s portfolio NLA and 22% of total gross rental income are expiring in 2019. Notably, one such lease is that for the single-tenanted Precise Two, a three-storey ramp-up warehouse within Jurong Industrial Estate – the asset accounted for 5.1% of the gross rental income in FY18. The existing tenant, Precise Development, will take up 20% of the asset’s NLA post-lease expiry. Given that the asset is relatively new and in a desirable location, we are currently forecasting a decent 80% occupancy for the asset post-expiry,” she explains.
As at 11:17am, units in CLT are trading 1 cent lower at 74 cents to imply an 8.2% FY19E DPU yield, based on Maybank estimates.
