Cache Logistics Trust - Maybank Kim Eng 2019-01-25: Slow Quarter, Recovery Mode


Cache Logistics Trust - Slow Quarter, Recovery Mode

Slight miss, but compelling valuations; BUY

  • CACHE LOGISTICS TRUST (SGX:K2LU)'s 4Q18 DPU of SGD1.502cts was down 5.9% y-o-y and 4% behind our estimate but in line with the Street’s. This was due to lower-than-expected occupancies in Singapore.
  • We lower DPU by 4-5% and introduce FY21 estimates. Accordingly, our DDM-based Target Price is revised down to SGD0.85 (COE: 8.2%, LTG: 1.5%).
  • Occupancies, however, remained strong at 95.0% from increasing Australian contributions. We also see stronger NPI growth as Singapore rents stabilise and leasing demand picks up.
  • Valuations are compelling at 8.2% dividend yields and 1.0x P/BV, both at -1SD of their 8-year averages.
  • AUM has been cleaned up with the divestment of its single China asset. Growth should accelerate following its Australian expansion.
  • BUY.

Some near-term weakness in Singapore…

  • Cache Logistics Trust's 4Q18 revenue rose 4.8% y-o-y while NPI declined 0.6% y-o-y. The former was driven by contributions from its 9-property Australian portfolio acquired in Feb 2018, which offset a weaker performance in Singapore. Its Singapore revenue / NPI fell 10.9% / 13.4% y-o-y, with the:
    1. conversion of its Commodity Hub master lease to multi-tenancies in Apr,
    2. divestment of Hi-Speed Logistics Centre in May, and
    3. absence of a one-time rental top-up in 4Q17 at 51 Alps Ave.
  • As such, Cache Logistics Trust's 4Q18 DPU fell 5.9% y-o-y, also due to SGD1.4m in coupon payments for its SGD100m perpetuals and withholding tax arising from its Jinshan Chemical Warehouse divestment.
  • Committed portfolio occupancy dipped q-o-q from 96.9% from 95.0%. Singapore’s was down from 95.4% to 92.5% while rental reversions were -4.4%, slightly better than the -6.6% in 3Q18. This was consistent with its industrial S-REIT peers which we attribute to an uneven industrial-sector recovery from an earlier supply surge.

… but cushioned by Australian assets

  • Revenue from Cache Logistics Trust's Australian assets doubled y-o-y while NPI jumped 71.0%. These were boosted by its largest-to-date portfolio acquisition completed in 1Q18.
  • Aggregate leverage was 36.2%, leaving an estimated SGD80-200m in debt headroom for potential acquisitions.
  • Management continues to eye assets in Australia and New Zealand for their freehold land.

Chua Su Tye Maybank Kim Eng Research | 2019-01-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.85 DOWN 0.900