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Frasers Logistics & Commercial Trust - UOB Kay Hian 2021-06-23: Riding On E-Commerce Growth & Sizeable Sponsor Pipeline

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) | SGinvestors.io FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - Riding On E-Commerce Growth & Sizeable Sponsor Pipeline

  • Frasers Logistics & Commercial Trust (FLCT) benefits from structural change in Australia as households switched to online retail and yields were compressed by an average of 51bp y-o-y in 1Q21. Germany has witnessed a strong recovery supported by the manufacturing sector and continued growth in e-commerce.
  • We expect Frasers Logistics & Commercial Trust to pivot toward the New Economy through expansion in logistics and business park properties. Frasers Logistics & Commercial Trust's distribution yield is attractive at 5.4% for FY21 and 5.7% for FY22. Re-initiate coverage with BUY. Target: S$1.79.



WHAT’S NEW


Sizeable sponsor pipeline supports future growth.


E-commerce central to Frasers Logistics & Commercial Trust’s logistics portfolio.

  • About 31.4% of Frasers Logistics & Commercial Trust’s tenants for its logistics portfolio are involved in e-commerce and/or e-fulfilment activities. The proportion has increased to 34% with the completion of the latest acquisitions.

Australia: Increase in capital values supported by structural change.

  • Penetration of online retail sales for Australia jumped 3.3ppt to 12.6% in 2020. The acceleration in penetration of online retail sales is structural and did not reverse post-lockdown. Yields were compressed by 46bp, 57bp and 50bp y-o-y respectively to 4.25% in Sydney, 4.43% in Melbourne and 5.00% in Brisbane due to an abundance of liquidity competing to acquire tenanted logistics properties at prime locations.

Germany: Benefitting from twin engines of growth.

  • The logistics market in Germany is powered by the recovery of the manufacturing sector and continued growth in online retail sales. The take-up for logistics space increased 13% y-o-y to 1.6m sqm in 1Q21. Vacancy rate was ultra-low at 1.3% for prime locations due to persistent shortage of logistics space. The average rents for logistics space increased 2% y-o-y to €6.43/sqm/month in 1Q21. Yield fell further by 0.2ppt y-o-y to 3.40%.


STOCK IMPACT

  • Frasers Logistics & Commercial Trust invests in income-producing properties used predominantly for logistics, commercial (CBD office space) or business park (non-CBD office and R&D space) purposes. It focuses on the Asia Pacific region and Europe. Its portfolio comprises 103 properties valued at S$6.8b as of Jun 21, diversified across five developed markets – Australia, Germany, Singapore, the Netherlands and the UK.

Core holding included in major indices.



EARNINGS REVISION/RISK


VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Continued expansion by tapping on sponsor pipeline.
  • Compression of cap rates for logistics properties leading to sizeable revaluation gains.





Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-06-23
SGX Stock Analyst Report BUY MAINTAIN BUY 1.790 SAME 1.790



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