Cache Logistics Trust - UOB Kay Hian 2015-11-04: Shoring Up Balance Sheet For Foreign Shores

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CACHE LOGISTICS TRUST K2LU.SI 

Cache Logistics Trust - Shoring Up Balance Sheet For Foreign Shores 

WHAT’S NEW 

• CACHE has proposed the placement of up to 104.17m-106.27m new units to raise proceeds of approximately S$100m, at an issue price range of between S$0.941-0.960. The issue price range represents a 3.9-5.8% discount to the volume weighted average price of S$0.9989. 

IMPACT 

• Shoring up balance sheet for foreign shores… 

• Management intends to use proceeds raised for the following: 
  1. Up to S$37m or 37% of gross proceeds from the placement to fund potential acquisitions in Australia. 
  2. Up to S$60m or 60% of gross proceeds to partially or wholly repay borrowings. 
• Any balance of net proceeds is intended for general corporate and working capital purposes. 
• Cache’s gearing level is set to improve to an estimated 33.7%, assuming S$60m of borrowings are repaid, from its gearing of 38.3% as of 3Q15. 

• … and looking to cash in on Australia. 

• Australia looks particularly attractive to management notwithstanding higher taxes, primarily for its freehold land titles (JTC: 30 years), and transparent policies as opposed to China’s. Cache's fourth Australian acquisition announced earlier this month came on the heels of the acquisition of three Australian properties earlier this year. We estimate that Australia should account for about 8.1% of portfolio value with the addition of the fourth asset, which is line with management’s stated strategy of expanding its footprints in Australia. 

RECOMMENDATION 

• We maintain BUY on CACHE 

• We maintain BUY on CACHE with a reduced target price S$1.18 (from S1.24), trimming FY15F and FY16F DPU by 2.3% and 1.8% respectively, taking into account the dilution from placement, partially mitigated by income from the Australian portfolio. 
• We also raise our required return by 25bp to factor in the increased risks associated with overseas expansion. 
• Our valuation is based on a two-stage DDM model (required rate of return: 7.1%; terminal growth rate: 1.3%).

Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2015-11-04

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.18 Down 1.24