Ascendas India Trust - DBS Research 2017-10-26: Target A Lower Entry Point

Ascendas India Trust - DBS Vickers 2017-10-26: Target A Lower Entry Point ASCENDAS INDIA TRUST CY6U.SI

Ascendas India Trust - Target A Lower Entry Point

  • Ascendas India Trust (a-iTrust)'s 2Q18 DPU of 1.50 Scts (10% y-o-y) in line with expectations.
  • Boost from acquisition of BlueRidge 2 and aVance, completion of Victor building last year and positive rental reversions.
  • Awaiting further updates on proposed acquisition of Indian warehouse portfolio.



Wait for a better entry point. 

  • We maintain our HOLD call on Ascendas India Trust (a-iTrust) with a lower TP of S$1.15. 
  • While we are excited about a-iTrust’s growth prospects and move into the emerging Indian warehouse industry, due to the limited upside to our TP, we suggest that investors wait for a better entry point.


Where we differ – Healthy outlook but priced in for now.

  • Consensus currently has a BUY call on a-iTrust on the back of a positive DPU outlook. While we too remain positive on a-iTrust’s outlook, forecasting DPU CAGR of around 7% over FY17-FY20 – on the back of positive rental reversions given favourable demand and supply dynamics in its key markets as well as the ramp-up of earnings from recently acquired or soon to be completed developments – we believe this has largely been priced in for now. 
  • Our HOLD call is based on valuation grounds, given a-iTrust already trades at close to -1SD yield which stands at c.5.2%.


Untapped land-bank and move into the warehouse industry.

  • Through its untapped land-bank and sponsor pipeline, a-iTrust has access to over 5m sqft of floor area. Combined with the potential expansion into the Indian modern warehouse space, aiTrust has a visible source of growth over the long term. The ability to execute on these growth opportunities is also supported by its strong balance sheet. 
  • Near term, investors should look out for the finalisation of its proposed acquisition of a warehouse portfolio, as a potential re-entry point.


Valuation

  • We lowered our DDM-based TP of S$1.15. 
  • With limited upside to our TP, we retain our HOLD recommendation.


Key Risks to Our View

  • The key risk to our bullish stance on a-Trust’s DPU is a significant depreciation of the INR, a downturn in the Indian economy which will depress rents or delays in the completion of announced acquisitions and development projects.


WHAT’S NEW


Delivers as expected 2Q18 DPU up 10% y-o-y

  • a-iTrust reported strong results in 2Q17. DPU rose 10% yo-y to 1.50 Scts partially due to a stronger INR versus as DPU in INR terms only rose 5% y-o-y. However, underlying NPI was robust, jumping 26% y-o-y to S$31.6m. This was largely attributed to the prior acquisitions of BlueRidge 2 and aVance 4, completion of the Victor building in June last year and positive rental reversions. 
  • We understand in Bangalore, Hyderabad and Chennai, a-iTrust has been able to raise rents by 3%, 5- 7% and 13% respectively.
  • Overall portfolio occupancy remains healthy at 92%, or 96% excluding the recently acquired BlueRidge 2. 
  • Meanwhile, occupancy at BlueRidge 2 has since improved to 66% or 69% (committed) from 62% (committed) in 1Q18. In addition, a-iTrust is in active discussions to fill in another 7% of the building. There was a dip in occupancy at The V from 98% in 1Q18 to 88%. This was largely due to the completion of Atria in September which is 84% committed. On a committed basis, The V’s occupancy was 94% as at end 2Q18.

Balance sheet remains strong

  • a-iTrust’s balance sheet remains strong with gearing stable at 30%. However, we expect a-iTrust’s gearing to settle around the 33-34% level post the announced acquisitions and new developments.
  • Average cost of debt was also stable at 6.5% with the proportion of fixed rate at 93%(96% at end 1Q18).
  • Due to distribution paid, adjusted NAV per unit dipped slight to S$1.02 from at S$1.05 in the prior quarter.

Positive rental reversions to continue with boost expected from completion of the Atria Building

  • a-iTrust’s key market in India remain tight with vacancies remaining relatively low or falling further since end June.
  • In Bangalore (Whitefield), the market vacancy remains stable at 7.7%. However, for Hyderabad (IT Corridor), Chennai (OMR) and Pune (Hinjewadi), vacancies have dropped since to 4%, 3.3% and 6.9% respectively from 4.7%, 6.0% and 8.9% at the end of June. This bodes well for a-iTrust to sustain a similar level of positive rental reversion achieved in 2Q18 over the next few quarters.
  • Currently, a-iTrust has 13% and 12% of leases up for renewal for the remainder of FY18 and in FY19 respectively.
  • Over the following few quarters, the trust should also benefit from the recently completed Atria Building at the V as well as the potential acquisition of the Indian warehouse portfolio from Arshiya Limited. Currently, aiTrust is undertaking due diligence on 0.8m sqft of warehouses.

Maintain BUY with TP of S$1.15

  • While 2Q18 results were in line with expectations, with limited upside to our TP of S$1.15, we maintain our HOLD recommendation.




Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2017-10-26
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.20 Up 1.150



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