A solid portfolio operation and stable capital management metrics has DBS Group Research analysts Derek Tan and Dale Lai remaining positive on Dawai House Logistics Trust (DHLT), following its earnings results for the 1HFY2023 ended in June.
DHLT reported a 0.4% y-o-y higher distribution per unit (DPU) of 2.61 cents for 1HFY2023, which the analysts say was in line with their projections, forming about 51% of their FY2023 estimates.
Tan and Lai have maintained their “buy” call, at an unchanged target price of 80 cents, as they note that DHLT is currently trading at a very attractive forward yield of about 8.3% from a valuation perspective.
DHLT is a pure-play, modern logistic portfolio located in cities with limited supply. For this reason, DHLT’s portfolio continues to enjoy high occupancy rates and its tenants are expected to continue renewing their leases due to a lack of better alternatives, say Tan and Lai.
DHLT’s portfolio occupancies remained stable q-o-q at 98.6%, as at June. Its only vacancy in its portfolio at DPL Koriyama has since been leased out at the end of July.
The analysts note that DHLT’s overall portfolio achieved a 100% occupancy as at end July, and only 9.1% and 22.5% of its portfolio leases will expire in 2HFY2023 and FY2024 respectively. One master lease at D Project Kuki S will be expiring in FY2024, but DHLT is already in the advanced stage of negotiations with the tenant, they say.
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In addition, DHLT enjoys a healthy gearing at about 36%, providing ample debt headroom of about $100 million to tap into its sponsor’s pipeline of newly built modern logistics facilities that are valued at more than $1.5 billion, the analysts add.
Meanwhile, its borrowing costs remained at 0.99%, with 100% of its loans hedged to fixed rates, and zero loans due for refinancing until Nov 2024.
“Although any upside to earnings is relatively limited, given the long weighted average lease expiry (WALE) and high portfolio occupancies, accretive acquisitions will drive earnings growth,” they say.
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However, the analysts say that DHLT has suffered from translation losses, as the Japanese yen has been weakening against the Singapore dollar in the past year.
According to the analysts, this has caused revenue and net portfolio income (NPI) to come in at 4.3% and 6.6% lower y-o-y in Singapore dollar terms respectively. In comparison, 2HFY2022’s revenue and NPI was 3.6% and 0.8% higher h-o-h.
“In our projections, we have assumed an exchange rate of $1:JPY100 for FY2023/FY2024.” they say, as they remain cautious that this may lead to a further impact on earnings.
As income hedging for the rest of FY2023 has already been locked in, the analysts believe that DHLT is on track to deliver a FY2023 DPU of 5.10 cents. They also believe that the improved earnings from its 100% portfolio occupancy and positive rental reversions for lease renewals will be able to offset the continued weakness in foreign exchange.
“We continue to remain positive on DHLT for its solid portfolio operations and stable capital management metrics. Although the weak Japanese yen against the Singapore dollar continues to be a dampener, we believe that the improvement in occupancies and potentially some positive rental reversions will enable DHLT to report stable earnings and even some growth going forward,” say Tan and Lai.
As at 3.38pm, shares in DHLT are trading 0.5 cents lower, or 8.1% down at 62 cents.
