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Analysts not yet ready to cash in on Cache

Stanislaus Jude Chan
Stanislaus Jude Chan10/25/2017 03:50 PM GMT+08  • 3 min read
Analysts not yet ready to cash in on Cache
SINGAPORE (Oct 25): Analysts are keeping the reins on Cache Logistics Trust after the REIT on Tuesday posted third quarter results which were in line with expectations.
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SINGAPORE (Oct 25): Analysts are keeping the reins on Cache Logistics Trust after the REIT on Tuesday posted third quarter results which were in line with expectations.

Cache saw its distribution per unit (DPU) fall 12.8% to 1.541 cents for the 3Q ended September, from 1.767 cents a year ago.

This was mainly attributable to lower income from operations and an enlarged number of units in issue due to its recently-completed rights issue of 162.6 million new units to raise some $102.7 million.

Excluding the effect of the rights issue, DPU was 1.6% lower at 1.818 cents in 3Q17, compared to 1.847 cents in the corresponding period last year.

Gross revenue dipped 2.2% to $27.4 million and net property income fell 3.3% to $21.3 million in 3Q17.

The decline was due to the divestment of Cache Changi Districentre 3 and lower income from 51 Alps Ave due to a holding arrangement in place amid ongoing legal proceedings over a lease dispute at Schenker Megahub.

“No progress was made on the Schenker lease disputes, which remain a drag on its share price performance,” says RHB Research analyst Vijay Natarajan, calling it a “key concern”. “Management however sounded optimistic that a potential outcome is likely by the end of the year.”

RHB is keeping its “neutral” rating on Cache and cutting its target price to 84 cents, from 86 cents previously.

“Our FY17-18 DPU forecasts have been cut by 6% and 12% respectively to factor in the impact of the rights issue,” Natarajan says.

Maybank Kim Eng Research analyst Chua Su Tye, too, is lowering Cache’s DPU forecasts following the rights issue.

“We have cut Cache’s DPUs by 11-14%,” says Chua.

As a result, Maybank is keeping its “hold” call on Cache, but lowering its target price of 85 cents, from 91 cents previously.

Over at Phillip Securities Research, however, analyst Richard Leow is less concerned over the impact of the rights issue.

“Despite the 18% dilution from the rights issue, our FY18e DPU is only 2.3% lower y-o-y as we have been factoring-in a one-off top-up payment following a favourable resolution to the 51 Alps Avenue dispute,” Leow says.

As such, Phillip is keeping its “neutral” call on Cache with an unchanged target price of 82 cents.

The analysts note that after proceeds from the rights issue was used to repay borrowings, Cache’s gearing has fallen to 35.7%, from 43.6% previously.

“At the Trust level, debt headroom is now higher and this is favourable for acquisitions,” says Leow. He estimates that Cache’s debt headroom is at $110 million assuming a target leverage of 40%, which could potentially grow the portfolio by 9%.

In addition, Natarajan opines that recent changes at the REIT manager level, which includes HNA group’s acquisition of CWT and the privatisation of ARA Asset management, offers growth potential.

“We believe the changes would potentially enable Cache to access the huge pipeline of sponsor assets in Asia, and also increase its ability to source and close deals,” he says.

According to Maybank’s Chua, Cache’s management continues to eye acquisition growth opportunities from Australian third-party assets.

However, he cautions that there is already concern over warehouse oversupply.

“Within sub-sectors, we continue to see a more challenging outlook for warehouses, as new 2017 supply adds 12% to total stock, versus 4.5% for factories and 0.2% for business parks,” he says.

As at 3.41pm, units of Cache Logistics Trust are trading half a cent higher at 84.5 cents. According to Phillip, this implies an estimated P/NAV of 1.12 times and a distribution yield of 8.0% for FY17.

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