Cache Logistics Trust - DBS Research 2016-01-06: Driven by recent acquisitions

SGinvestors.io

CACHE LOGISTICS TRUST K2LU.SI 

Cache Logistics Trust - Driven by recent acquisitions 

Upgrade to BUY, TP S$1.05. 

• We are seeing value emerging after recent price declines. 
• Yields of >9.0% are attractive in our view and will have priced in most negatives in our view. As such, we upgrade the stock to a BUY, with a revised TP S$1.05 as we priced in the recent equity fund raising exercise and acquisitions. 

Recent acquisitions to drive earnings . 

• Cache’s Singapore portfolio is expected to see rental pressure from 
  1. conversions of single-user properties to multi-tenanted properties, 
  2. heightened competition due to new supply. 
  As such, growth will mainly be driven from its recent acquisitions such as the four properties in Australia. 
• We believe Australia is an attractive target market given its long leases and the weak AUD-SGD exchange rate, which could present upside if the AUD strengthens in the medium term. 

Limited acquisition capacity as gearing nears 40% 

• Gearing is expected remain at c. 36% post recent equity fund raising exercise. 
• While there is still headroom for acquisitions, we believe that the manager is likely to turn selective, in view that rising interest rates could eat into distributions if gearing is elevated. 

Valuation: 

• Our target price at S$1.05 has included the latest acquisition in Australia. 
• Our upgraded BUY call is premised on limited upside to our target price. 
• A yield of >9.0% is likely to limit downside to current share price. 

Key Risks to Our View: 

• Interest rate risk. Higher interest cost is expected to eat into distributions. We note that the Manager has locked in close to 67% of its debt into fixed-rates.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-01-08

DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 1.05 Down 1.11