SINGAPORE (Nov 3): DBS and CIMB are maintaining their “buy” call on Frasers Logistics and Industrial Trust with target prices of $1.18 and $1.20 respectively.
FLT reported 4Q17 DPU of 1.77 cents which was 8.6% above IPO forecasts. 4Q17 distributable income came in 12.1% above the IPO forecast, backed by contributions from four completed properties acquired in August, which made up part of the portfolio transaction. The REIT also benefited from interest savings from lower borrowing cost of 25.8% p.a. vs the IPO forecast of 3.4%.
“We like FLT for an expected 14% 12-month total return underpinned by a growing distribution yield,” says DBS lead analyst Derek Tan.
“With an under-geared balance sheet, FLT has the ability to surprise on the upside through acquisitions, if executed from a myriad of opportunities available from its sponsor,” adds Tan, who also likes the REIT’s strong earnings visibility with only 2.5% of revenues to be renewed in FY18.
While DBS’ estimates are more conservative to account for potential cut in payout ratio in FY18 in order to fund ongoing capex, its target price is one of the highest, Tan says that’s because the Street has yet to fully reflect the resilience of the portfolio and ample growth from acquisitions from sponsor of 14 properties in Australia with possible expansion into Europe in the medium term.
Indeed, as at 4Q17, gearing was maintained at 29.3% with cost of debt at 2.8% p.a. with 72% of borrowings are hedged. CIMB understands that distribution income would be hedged on a six-month forward basis.
“Given sponsor’s Australia development pipeline, we believe FLT can maintain an acquisition rate of A$150m-250m p.a. in the next two years which could catalyse the stock,” says CIMB lead analyst Yeo Zhi Bin.
“We tweak up our FY18-19 DPU by 0.6% as we lower our interest costs slightly. We also introduce FY20F forecasts. Boosted by the portfolio transaction and stronger A$, we project a two-year DPU CAGR of 4.6% until FY19,” says Yeo.
As at 10.10am, units in FLT are up 1 cent at $1.12 or 17.5 times FY18 DBS’ forecast earnings.
