SINGAPORE (July 28): DBS is maintaining its “hold” call on Cache Logistics Trust with a higher target price of 82 cents.
“We maintain our ‘hold’ call owing to the near-term uncertainties of possible further rental downside risk, as well as potential DPU dilution if the REIT undertakes a consequence of equity fundraising to recapitalise the balance sheet,” says analyst Derek Tan in a Thursday report.
The rating comes after DBS rolled forward earnings and moderated discount rate assumptions based on the assumption that the industrial sector is bottoming out after over three straight years of decline.
Offering an attractive forward yield around 8%, Tan says Cache owns a portfolio comprising some of the newest warehouses in Singapore as well as high-quality warehouses in Australia, which offer sustainable returns to investors in the long term after weathering through the sector’s cyclical downside.
Tan says OCBC’s estimates are lower in FY18F on the back of projected lower occupancies and negative rental assumptions. However, the brokerage expects the resolution of the Schenker case to by end of FY18 with rents reverting back to market level.
“Our target price is also conservative as we applied a higher discount rate in view of the REIT’s constrained debt-financing ability as its gearing level approaches the regulatory limit and the potential dilutive impact of the probable near-term equity fundraising,” says Tan.
Units in CacheLog are trading at 88 cents.
