SINGAPORE (Mar 10): Near-term uncertainties are aplenty for the logistics sector, but analysts are choosing to remain optimistic about the longer-term potential in certain stocks.
RHB Group Research has identified Cache Logistics Trust as one such counter that investors should take note of.
In a Tuesday report, RHB Group Research analyst Vijay Natarajan recalls Cache’s decision to enter into a strategic transaction with logistics property group Logos to establish a logistics real estate platform in the Asia-Pacific region.
As part of the deal, ARA Asset Management, which is the manager of Cache, will transfer its entire holdings in both Cache and ARA Trust Management (Cache) to Logos.
This move, according to Natarajan, is set to help Cache tide over the near term difficulties.
“The entry of Logos as Cache’s new manager and major shareholder provides much needed ammunition in terms of strengthening its operational capabilities and growth potential,” adds Natarajan.
In addition, he adds that Cache is slated to reap the profits of the transaction in terms of a healthy acquisition pipeline, which has been tough to find amid tight capital market conditions and synergistic operational capabilities.
“[This] should result in some cost savings and an enhanced regional network,” says Natarajan.
To be sure, Natarajan expects Cache to be aggressive in terms of asset acquisitions in the medium-term. Singapore currently accounts for some 68% of the REIT’s portfolio, with Australia constituting the rest.
“Management has been reiterating its interest for acquisitions in overseas markets due to the freehold nature of assets,” observes Natarajan.
“With Logos becoming its sponsor, we believe Cache could potentially look at acquiring its Australia and New Zealand assets and also enter into new markets like South Korea and Vietnam at an opportune time,” he adds.
However, Natarajan notes that with a gearing of 40.1%, the REIT has limited debt headroom, indicating that future acquisitions are likely to be accompanied by sizeable equity fund raising.
All in all, although the local logistics sector remains challenging, Natarajan expects supply pressures to wear off post-FY2020.
“About 20% of Cache’s leases are due for renewal in 2020 for which we expect flattish to slightly negative rent reversions (0 to -5%) with some transition vacancies expected in some of its assets,” says Natarajan.
“The outlook for the industrial market in Australia remains positive on the back of higher infrastructure spending and growth in the e-commerce sector,” he adds.
The brokerage is reiterating its “buy” call on Cache with a target price of 74 cents, translating into a 9% yield for the counter.
As at 11.05am, units in Cache Logistics Trust are trading 0.5 cent higher, or 0.78% up, at 64.5 cents. This translates to a price-to-book (P/B) ratio of 1.1 times and a dividend yield of 8.8% according to RHB valuations.
