Cache Logistics Trust - RHB Invest 2020-03-10: A New Beginning; BUY


Cache Logistics Trust - A New Beginning; BUY

  • The entry of Logos as Cache Logistics Trust (SGX:K2LU)’s new manager and major shareholder provides much needed ammunition in terms of strengthening its operational capabilities and growth potential.
  • We remain confident on the logistics sectors’ long-term potential in the region, despite near-term uncertainties from the COVID-19 outbreak.
  • We see value emerging at current levels, with stock offering a 9% yield and trading at 1.1x P/BV.

Logos – a specialised logistic player in Asia Pacific.

  • ARA Group (ARA) announced recently that it acquired a majority stake in the Logos Group (Logos) by which it will transfer its entire manager stake and shareholding (10.3%) in Cache Logistics Trust to Logos. ARA will still retain control of the REIT manager via its holding in Logos. No pricing details were disclosed.
  • Logos is a specialised logistics player, with operation across eight countries in Asia Pacific, and a completed value of SGD 8.2bn. Mr Stephen Hawkins, managing Director of Logos’ South-East Asia business will join the REIT as a board member.
  • Cache Logistics Trust will also be rebranded in coming months. We see strong benefits to Cache Logistics Trust from the above transaction in the form of a healthy acquisition pipeline which has been difficult to find amidst tight capital market conditions and synergistic operational capabilities, which should result in some cost savings and an enhanced regional network.

The logistics sector in Singapore remains challenging but supply pressures should wear off post 2020.

  • Based on JTC’s latest industrial data, c.336,000 sqm of new warehouse space will be completed in 2020 vs c.300,000 sqm in 2019 and a 10-year average of c.400,000 sqm. Supply tapers off sharply in 2021. About 20% of Cache Logistics Trust’s leases are due for renewal in 2020 for which we expect flattish to slightly negative rent reversions (0 to -5%) with some transition vacancies expected in some of its assets.
  • The outlook for the industrial market in Australia remains positive on the back of higher infrastructure spending and growth in the e-commerce sector.

Expect more overseas asset acquisitions in medium-term.

  • Singapore currently accounts for 68% of Cache Logistics Trust’s portfolio value with Australia accounting for rest. Management has been reiterating its interest for acquisitions in overseas markets due to the freehold nature of assets.
  • With Logos becoming its sponsor, we believe Cache Logistics Trust could potentially look at acquiring its Australia and New Zealand assets and also enter into new markets like South Korea and Vietnam at an opportune time.
  • Debt head room is limited with gearing at 40.1% and thus future acquisitions are likely to be accompanied by sizeable equity fund raisings.

Earnings Changes.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-03-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.74 DOWN 0.800