Singapore’s logistics sector in a 'sweet spot': RHB

Lim Hui Jie
4-min read

RHB's top picks in this sector are Capitaland Ascendas REIT, ESR-LOGOS REIT and Aims APAC REIT.

RHB Group Research has described Singapore’s logistics sector to be in a “sweet spot,” as demand for logistics services rises in the region.

The research team has pointed out that as the demand for such services rose, the governments of Indonesia, Malaysia, Singapore and Thailand have embarked on strategies to encourage the sector in their own countries to move up the value chain.

“That said, Singapore has enjoyed extraordinary success in this respect, over the past few decades,” the team says.

Among the Asean member countries covered in their report, they point out that only Singapore has been ranked among the top positions, at seventh out of 160 countries measured by the World Bank’s 2018 Logistics Performance Index (LPI) score. (see Figure 1)

As for the other countries, the quality of logistics-related infrastructure has put mild pressure on the LPI scores for Thailand, Malaysia, and Indonesia. “That said, all three countries should be able to mitigate this by offering a high quality of logistics services,” says the research team.

They believe that these four Asean nations can work together to “create positive synergies in areas like regional infrastructure connectivity, eliminating logistics barriers across borders, enhancing the efficiency of the clearance process.”

Specifically for Singapore, they think that it should maintain its pole position as Asia’s top logistics hub on the back of supply chain shifts, government policies and major infrastructure upgrades to its seaport and airport.

This is supported by the Singapore government's expectations that the logistics sector will post an annual value-added (VA) growth of 2% to $6.9 billion by 2025 and add 2,000 new jobs.

To that end, the research team expects the demand for warehouses to remain robust, and Singapore logistics players should still enjoy healthy occupancy rates and rental rates increase.

Their stock picks within the sector for Singapore are ESR-Logos REIT, AIMS APAC REIT (AAREIT) and Capitaland Ascendas REIT (A-REIT).

In his section on Singapore, analyst Vijay Natarajan says its logistics industry is poised to benefit from Asia’s growth, with the anticipated rise of consumption and manufacturing in the region.

“As companies look towards diversifying their existing production bases and supply chains, the emergence of South-East Asia as a viable alternative location has also placed Singapore in a good position.”

Natarajan says Singapore is also a key regional hub for global logistic players, with the top 25 companies conducting operations here. Most of them, like DHL and Schenker, have set up regional or global headquarters functions here.

Singapore acts as a base for these firms to anchor major logistics and supply chain operations, specialise capabilities, and conduct innovation activities to provide new supply chain solutions.

He says that the sector has remained not only resilient, it also emerged strong post-Covid-19, as many businesses seized opportunities to consolidate and scale their operations.

This is reflected in the 2021 gross domestic product (GDP) contribution of the transport and logistics sector, which was at 1% above pre-pandemic levels.

Referring to the selected S-REITs above, Natarajan has a “buy” rating for all three REITs, with target prices of $3.15, 46 cents and $1.48 for A-REIT, ESR-Logos REIT and AAREIT respectively.

For A-REIT, Natarajan describes it as “a pioneer in Singapore’s business park space” with a good mix of R&D companies, technology firms and high-tech manufacturing sectors. But the REIT has also been scaling up its presence in logistic sectors, “which we see as positive,” he writes.

For ESR-Logos REIT, he thinks that its well-diversified portfolio of majority new-economy assets puts it in a good position to take on the rising macroeconomic uncertainties.

“The REIT’s active portfolio recalibration via divestment of non-core shorter lease assets and addition of high-quality freehold logistic assets are a step in the right direction, in our view.”

Another key positive has been the strong commitment of its sponsors, via acquisitions of additional stakes at a premium, and a healthy asset injection pipeline.

Finally, for AAREIT, Natarajan says it “remains an attractive proxy” to the Singapore industrial sector outlook, as it derives a majority of its income derived from the logistics sector and long-leased Australian business parks.

Most notably, the REIT is also minimally impacted by rising interest rates and utility charges, and its modest gearing offers room for opportunistic acquisitions.

As of 1.05pm, shares of A-REIT, ESR-Logos REIT and AAREIT were trading at $2.76, 34 cents and $1.20 respectively.

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