Frasers Logistics Trust upgraded to Add by CGS-CIMB

Australian notes and coins

CGS-CIMB upgraded Frasers Logistics & Industrial Trust to Add from Hold on lower interest rates in Australia.

Frasers Logistics & Industrial Trust reported Friday its fiscal third quarter net property income rose 20.7 percent on-year to A$49.64 million (S$46.97 million or US$34.30 million) on acquisitions in Europe and Australia.

CGS-CIMB said the results were in line due to contributions from the new acquisitions, but that was offset by the weaker Australian dollar. The hedged rate for the Australian dollar into the Singapore dollar fell 7.0 percent on-year, with the Aussie fetching S$0.9504, down from S$1.0214 in the year-ago period, the brokerage said.

The brokerage adjusted its distribution per unit (DPU) forecasts based on a weaker Australian dollar assumption and on adjustments to rental escalation estimates. That spurred a 1.0 percent increase to its fiscal 2019 DPU forecast, but a cut of 3.8 percent to its fiscal 2020 DPU estimate.

While the lower Aussie dollar could pressure Singapore dollar denominated distributions, the Reserve Bank of Australia’s (RBA) move to cut interest rates again in July was a positive for the trust, CGS-CIMB said in a note Monday. The RBA cut by 25 basis points to 1.0 percent in July after lowering rates by 25 basis points in June, the note said.

“The cuts could lower Australian dollar borrowing costs and facilitate a more favourable environment for acquisitions in Australia,” CGS-CIMB said.

“We think that the market has fully accounted for the weaker Australian dollar, but has yet to appreciate the potential lower cost of
debt due to a lower Australian dollar cash rate,” the note said. “We view FLT’s ability to tap on its sponsor’s pipeline in Australia and Europe as well as favourable supply-demand dynamics in both markets as key investment merits.”

CGS-CIMB raised its target price to S$1.27 from S$1.25.

FLT’s unit price was up 0.83 percent at S$1.21 at 4:27 P.M. SGT.

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