Frasers Logistics & Commercial Trust (FLCT) could replace Jardine Strategic as a constituent in the next review of the Straits Times Index (STI) in June, says CGS-CIMB Research analyst Lim Siew Khee.
See: Jardine Matheson Holdings to acquire remaining stake in Jardine Strategic for US$5.5 bil; Jardine Strategic shareholders to receive US$33 per share
This based on the size of FLCT’s free-float and market-cap, which stands at $3.2 billion as at March 5.
“While the appetite for REITs could diminish on the back of steepening yield curve, we continue to like FLCT (as one of our country top picks) for visible inorganic growth potential and income resilience,” she writes in a March 8 flash note.
“If included, we estimate FLCT’s weight in [the] STI to be 1.1%. We like it for its exposure to the logistics warehouse sector that will continue to ride on the e-commerce uptrend as well as its visible inorganic growth potential,” she adds.
“As part of its long-term growth strategy, FLCT will continue to manage its assets actively as well as seek inorganic growth via selective development opportunities and tap on acquisition growth opportunities from both its sponsor’s ROFR pipeline and third-party acquisitions.”
On March 8, Jardine Matheson Holdings announced that it was buying the 15% of Jardine Strategic it does not own at US$33 ($44.27) per share.
Upon the completion of the acquisition, Jardine Matheson will own 100% of Jardine Strategic.
As Jardine Matheson already owns 85% in Jardine Strategic, the requisite shareholder approval is “certain to be acquired”, says fellow CGS-CIMB analyst William Tng in a separate note.
The acquisition is expected to be completed in April, where Jardine Strategic will then be delisted.
No regulatory clearances are likely to be required, adds Tng.
In its acquisition announcement, Jardine Matheson will report its FY2020 results on March 11. Based on unaudited results, Jardine Matheson has guided that it expects underlying net profit of US$1.09 billion, and FY2020 earnings per share (EPS) of US$2.95.
On a pro-forma basis, Jardine Matheson says the acquisition will result in its FY2020 net profit increasing by US$83 million, and EPS increasing to US$3.84 due to the lower share base.
Tng, while waiting for Jardine Matheson’s results, has maintained “hold” on the counter with an unchanged target price of US$54.68, based on 0.85 times price-to-book value (P/BV).
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Separately, Lim also notes that other companies under the STI reserve list are Frasers Centrepoint Trust (FCT), Keppel REIT, Suntec REIT and Netlink NBN Trust, based on market cap size.
On that, Keppel REIT could be a candidate based on a three-month ADV of $12.1 million.
Her end-2021 STI target remains at 3,140 points, still based on 14.2 times 12-month forward price-to-earnings (P/E).
“Our large-cap picks are CapitaLand (CAPL), Venture Corporation (VMS), SembCorp Industries (SCI), Yangzijiang (YZJ), Ascendas REIT (AREIT), Frasers Centrepoint Trust (FCT), FLCT, ST Engineering, ThaiBev, and UOB. Our small-cap picks are Propnex, BRC Asia, BOCS, CSE, HRNet, Japfa, and Koufu,” she says.
As at 9.39am, the STI is trading 1.14% up at 3,106.10. Shares in Jardine Matheson and Jardine Strategic are trading at US$65.33 and US$32.80 respectively.
