DBS Group Research analysts Dale Lai and Derek Tan have maintained their “buy” rating for Daiwa House Logistics Trust (DHLT) DHLU with an increased target price of 80 cents compared to 75 cents previously.
In their report dated Feb 24, the analysts say the “worst is over” as the Japanese yen (JPY) has bottomed out. DHLT’s dividend per unit (DPU) of 5.7 cents for FY2022 was in line with their initial public offering (IPO) forecasts despite the weaker JPY, above the DBS analysts’ estimates.
According to Lai and Tan, DHLT has a “pure-play”, modern logistics portfolio located in cities with limited supply. “DHLT owns a portfolio of 14 modern logistics facilities that are newly built with an average age of only around four years. With a presence in cities where the supply of modern logistics facilities is limited, DHLT’s portfolio continues to enjoy high occupancy rates and its tenants are expected to continue renewing their leases due to lack of alternatives.”
They note that the REIT’s portfolio valuations declined 6.9% due entirely to foreign exchange (FX) translation losses, while gearing “crept up” but remained healthy at around 36%, providing “ample” debt headroom of around $100 million.
The analysts say that this provides DHLT with the “firepower” to tap into its sponsor’s pipeline of newly built modern logistics facilities that are valued at more than $1.5 billion. Although upside to earnings are relatively limited given the “strong operating fundamentals” of a long weighted average lease expiry (WALE) of seven years and high portfolio occupancies, accretive acquisitions will drive earnings growth, they add.
“However, DHLT has suffered from translation losses as the JPY has been weakening against the Singapore dollar (SGD) in the past year. With the JPY looking to have bottomed against SGD, the appreciation in the JPY could be a tailwind to our earnings estimates going forward,” they say.
See also: Test debug host entity
They have tweaked our exchange rate projections for FY2023 to SGD1:JPY100, as compared to the previous projection of SGD1:JPY105.
Due to DHLT’s “stellar operating performance” and revised exchange rate assumptions, the analysts’ estimates have also seen an upward revision.
Their increased target price of 80 cents is based on a discounted cash flow (DCF) valuation with a weighted average cost of capital (WACC) of 5.6% at a risk-free rate of 3.5%, implying a target yield of 5.1% to 5.6%. “We have not assumed any acquisitions in our projections, and any accretive deals announced could lead to an upside to our projections, they add.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
According to them, key risks to their view would be a further weakening of the JPY, leading to a further impact on earnings and gearing inching up further.
As at 12.05pm, units in DHLT were trading flat at 61.5 cents.
