- BUY Entry 1.96 – Target – 2.16 Stop Loss – 1.87
- Keppel DC REIT is the first pure-play data centre REIT listed in Asia on SGX. KDCREIT’s investment strategy is to invest in a portfolio of income-producing real estate assets which are used primarily for data centre purposes as well as real estate-related assets. With a portfolio of assets located in key data centre hubs across Asia Pacific and Europe, the Manager aims to deliver sustainable returns to investors by capturing value from the data centre industry.
- 1H22 results to see continued support from past acquisitions. Contributions from its previously acquired Eindhoven DC, Guangdong DC, London DC, and the completion of AEIs at its DC1 and Intellicentre3 development will continue to support topline revenue. Nonetheless, we expect NPI margins to continue to be afflicted by strong energy prices, we note that MSCI Global Energy Index only peaked in early June but has been on the downtrend ever since, indicating that energy prices may have peaked.
- Demand for DCs continues to be strong, supply deluge may provide a cap floor. According to Cushman & Wakefield, demand for contiguous 10MW or more blocks of DC capacity continues to be strong. In fact, 18 markets that the firm tracks are currently now in sub-teen vacancies, double the number from 2021. This has led to continued growth in data center construction globally, providing ample acquisition opportunities for KDCREIT. In 2022, Cushman & Wakefield is expecting 4.1 GW (2021: 2.9GW) of DC capacity to be developed. Notably, London (prior KDCREIT acquisition) is a key location that is developing supply rapidly. Other Markets include Hong Kong and Jakarta.
- Post 1Q22 correction may have been overdone. Recall that in 1Q22, KDCREIT reported flat DPU of S$0.02466 apiece (+0.2% YoY). Investors were worried that NPI margin contraction to 91% from 91.5% could spill over especially in an inflationary environment. This has led to a number of Street downgrades, resulting in 5/7/1 BUY/HOLD/SELL ratings and an average TP of S$2.29. Based on consensus estimates, FY22F gross revenue should swell 7.8% YoY, while NPI should nodge a lower but still respectable 4.7% YoY increase. FY22F DPU growth should come in at 2% YoY to S$0.101 apiece. We believe that KDCREIT is trading at a significant discount to its historical trading range considering that it is currently trading ~2sd away from its 2-year mean of ~2.1x P/B. At current prices, KDCREIT would trade at an attractive 5.1%/5.4% FY22F/23F yield.
(Source: Bloomberg)