CFA Society Singapore
SINGAPORE (Aug 1): OCBC Investment Research is upgrading its call on Cache Logistics Trust (CLT) to “buy” from “hold” with a lower fair value of 81 cents compared to 83 cents previously, after adjusting for higher cost of equity to factor in a rising interest rate environment.
The research house’s upgrade comes in anticipation of the industrial sector bottoming by end-2018 or early 2019, with the belief that CLT is ready to participate on the upturn.
To recap, CLT recently reported lower 2Q18 DPU of 1.419 cents compared to 1.722 cents a year ago, which came in line with OCBC’s expectations.
OCBC analyst Deborah Ong nonetheless highlights progress made at its core asset CWT Commodity Hub, which maintained a decent 92.7% occupancy after its master lease conversion.
“Recall that as at the 1Q18 results release, the asset had only achieved a committed occupancy of 86% beyond the expiry of the master lease with CWT,” says Ong in a report on Wednesday.
As at CLT’s Wednesday closing price of 77.5 cents, CLT trades at 7.8% FY18F yield – a valuation level where the analyst sees an opportunity to collect CLT units 2-3 quarters before clearer signs of operational improvement are seen.
In particular, Ong of the view that CLT’s unit price can be further driven by an expected recovery in the industrial sector, especially given how only 3.1% of its portfolio will be expiring in 2H18.
“Rental reversions for leases renewed during the quarter came in at -4.0% y-o-y. Going forward, we expect the challenging environment within the industrial space to continue for most of the rest of the year, before seeing daylight towards the end. Management has also shared that they expect to see a bottoming of rents this year,” comments Ong.
“Given that only 3.1% of CLT’s portfolio by gross rental income is up for renewal for the rest of 2018 while 28.0% is up for renewal in 2019, we believe that CLT is reasonably positioned for the industrial sector recovery,” she adds.
As at 10:34am, units in CLT are trading 0.65% higher at 78 cents, which is around 7.85 times FY18F DPU yield.