Frasers Logistics & Industrial Trust - DBS Research 2017-05-30: Starts Aligning For Growth

Frasers Logistics & Industrial Trust - DBS Vickers 2017-05-30: Starts Aligning For Growth FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - Starts Aligning For Growth


Maintain BUY, TP S$1.10. 

  • We believe that Frasers Logistics & Industrial Trust (FLT) remains attractive with a prospective yield of close to 7.0%. 
  • 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. 
  • Maintain BUY and TP of S$1.10.


Where we defer. 


Earnings surprise abound as FLT is well positioned to acquire. 

  • Our estimates are higher than consensus on the back of 
    1. higher AUD vs SGD forecasts and 
    2. potential higher rents achieved for leases that are renewed. 
    Not priced into estimates at this point are acquisitions that the manager could execute on. 
  • FLT is trading at an implied cap rate of 6.1% (NPI/enterprise value) which implies that acquisitions will likely be value accretive to the REIT when executed upon. Given that its share price is positively correlated to DPU growth, we see stronger price momentum going forward. We see a low leverage of 28.9% as supportive for any potential acquisitions.

Positive AUD performance. 

  • FY17 distributions have been hedged at close to parity (SGD-AUD) and will be looking to forward hedge on a 6-monthly basis. With the AUD-SGD rate now 4% higher than its current hedged rate, the stronger AUD will translate to further upside to earnings.


Valuation

  • BUY maintained, TP S$1.10. 
  • Our TP is based on DCF and we have not assumed any further acquisitions. 
  • Our TP offers 15% upside to current price.


Key Risks to Our View

  • Currency risk. As the manager pays its distributions in SGD but earns in AUD, the REIT is exposed to currency fluctuations. The manager attempts to reduce foreign fluctuations by hedging distributions regularly.




Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2017-05-30
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.100 Same 1.100



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