Cache Logistics Trust - Phillip Securities Research 2016-03-09: Freight volume off to a weak start

Cache Logistics Trust - Phillip Securities Research 2016-03-09: Freight volume off to a weak start CACHE LOGISTICS TRUST K2LU.SI 

Cache Logistics Trust - Freight volume off to a weak start 

  • January 2016 container throughput plunged 10.5% yoy, continuing the 8.7% yoy slump for calendar year 2015. 
  • Air freight through Changi Airport was flat at 0.5% yoy growth in 2015; January 2016 was better. 
  • Lack of positive catalyst, stemming from slower China and Singapore growth. 

 Lacklustre container activity through 

  • Singapore ports in 2015; January 2016 is already even worse. Data from the Maritime and Port Authority of Singapore (MPA) shows that container throughput slumped 8.7% yoy in 2015 to 30.9mn TEU from 33.9mn TEU in 2014. 
  • Preliminary estimates from MPA shows that container throughput in January 2016 was 10.5% lower yoy. 

 Tepid air freight cargo volumes; bright spark in January 2016. 

  • Data from Changi Airport Group (CAG) shows that air freight movements was flat, growing 0.5% yoy to 1.85mn tonnes. 
  • Air freight movements have been flat the last five years. There was 2.8% yoy growth in 2011, followed by -1.9%, 0.5%, 0.3% and 0.5% growth from 2012 to 2015. A bright spark in January 2016 comes from a 4% yoy increase. 

 Lack of positive catalyst, stemming from slower China and Singapore growth. 

  • China's economy grew by 6.9% in 2015. This was the slowest growth in twenty-five years. The Chinese government had lowered its forecast for 2016 last week to 6.5%~7% growth, setting the stage for what could be a 26-year low. 
  • The Bloomberg consensus estimate for 2016 GDP growth is at 6.5%. On the home front, the Ministry of Trade and Industry (MTI) forecasts GDP growth of 1%~3%, which is lower than the 5-year historical average of 3.5%, and putting growth at the lower end of the historical spectrum. 

 Expect demand for warehouse space to be negatively affected. 

  • Singapore has a strong logistics infrastructure in place, with several top international third-party logistics players (3PL) having set up regional headquarters here. 
  • Tenants of Cache among the top 25 global 3PL players include DHL Supply Chain Singapore Pte Ltd, Nippon Express (Singapore) Pte Ltd and Schenker Singapore Pte Ltd. However, we do not see freight volumes picking up in 2016, and we are even more pessimistic now on the demand for warehouse space. 

 Cache has two master leases expiring in 2016; Distribution per unit (DPU) could be further eroded. 

  • The two master leases are at Schenker Megahub (expiring 31 August 2016) and Hi-Speed Logistics Centre (expiring 15 October 2016). This comes at an inopportune time when demand is weak together with an oversupply situation. 
  • Recall that Cache made a highly dilutive Private Placement in November 2015, increasing the outstanding number of units by 13.5%, from the then-existing total of c.785.6mn units. There are now 893.5 units as of 31 December 2015. These factors (lower demand, oversupply situation and unitholder dilution) would erode DPU further. 

 Maintain "Reduce" with new lower DDM-backed valuation of S$0.78 

  • Trade volume has been slow, as evident from the plunge in container throughput and tepid air freight volumes. 
  • In view of the 10.5% yoy plunge in container throughput in January 2016, we are now even more pessimistic on the outlook for the warehouse segment. 
  • We are unconvinced that the weak demand can absorb the overhang of new supply. 
  • Our previous target price was S$0.82.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-03-09
Phillip Securities SGX Stock Analyst Report REDUCE Maintain REDUCE 0.78 Down 0.82