Ascendas India Trust - DBS Research 2019-04-26: Unparalleled Growth

ASCENDAS INDIA TRUST (SGX:CY6U)

Ascendas India Trust - Unparalleled Growth

Ascendas India Trust's 4Q19 of 1.70 Scts (+3% y-o-y) translates to FY19F DPU of 7.33 Scts (+20% y-o-y) - above expectations.
4Q19 results impacted by one-off GST provision and weaker INR, however portfolio still benefited from prior investments and positive rental reversions.
New development into business parks, and favourable demand and supply dynamics to power DPU going forward.

We maintain our BUY call on ASCENDAS INDIA TRUST (a-iTrust, SGX:CY6U) with a higher Target Price of S$1.40.
We believe its expansion into modern warehouses since last year heralds a new leg of growth for the Trust. This will provide an additional kicker to its already fast-growing business space sector. This acquisition, combined with recently announced redevelopments/acquisitions, should translate to a 61% increase in floor area and underpins 2-year DPU CAGR of 12%, three to four times faster than the average for the S-REIT sector.

Compared to consensus, we have a higher Target Price of S$1.40m, pegged at a c.10% premium to Ascendas India Trust’s adjusted NAV per unit of S$1.31.
We believe the expansion into the modern Indian warehouse sector warrants a premium not only from the boost to Ascendas India Trust’s near-term DPU outlook but more importantly, the ability to accelerate medium-term earnings growth. Our confidence in Ascendas India Trust’s ability to execute on its warehouse expansion is due to its Sponsor Ascendas-Singbridge’s strong track record in the Asian warehouse space.

Through its untapped landbank and sponsor pipeline, Ascendas India Trust has access to over 5m sqft of floor area. Combined with the recent expansion into the Indian warehouse space which provides for a potential acquisition pipeline of 2.8m sqft, Ascendas India Trust 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.

After better than expected results and rolling forward to FY20, we raised our DDM-based Target Price to S$1.40 from S$1.25.

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

Ascendas India Trust closed FY19 on a solid note with 4Q19 DPU coming in at 1.70 Scts (+2% y-o-y). This resulted in a multi-year high DPU of 7.33 Scts (+20% y-o-y) which was 7% higher than our original forecast, largely on the back of lower than expected borrowing costs.
4Q19 DPU could have been better if not for the one-off GST provision of S$1.2-1.3m arising from the Singapore tax authorities disallowing Ascendas India Trust from claiming a GST input credit. We understand Ascendas India Trust is in discussions with the authorities to claim this GST input credit. Excluding this impact, 4Q19 DPU would have risen by c.10% y-o-y.
Nevertheless, Ascendas India Trust had a good quarter considering the depreciation of the INR against the SGD (48.8 in 4Q18 vs 52.1 in 4Q19) with 4Q19 NPI improving 5% y-o-y as the Trust benefited from an upturn in rents. We understand passing rents for properties in Bangalore, Hyderabad, Chennai, and Pune increased by 5%, 4%, 3% and 9% y-o-y respectively in 4Q19.
Furthermore, the acquisition of Arshiya Warehouses and higher overall portfolio occupancy (99% in 4Q19 versus 95% in 4Q18) boosted earnings.
In addition, Ascendas India Trust benefited from higher interest income (+446% y-o-y) on the back of income from investments in AURUM IT SEZ and aVance 5 & 6 as well as construction financing of aVance A1 & A2.

back of higher income with cap rates stable at 9%, Ascendas India Trust reported 10.2% and 13.5% increase in portfolio value in SGD and INR terms respectively. As a consequence, gearing fell to 31% from 33% at end 3Q19.
Adjusted ANV per unit also increased to S$1.31 from S$1.12 previously.
Effective weighted average cost of debt was stable at 6.0% with 77% of Ascendas India Trust’s borrowings on fixed rates.

On the back of the better than expected results, we raised our FY20-21F DPU by 7% as we now assume borrowing cost in the low 6% versus mid to high 6% previously, which was partially offset by a weaker INR (SGDINR rate of 51.5-52.0 versus 50.0 previously).
In addition, as we roll forward to FY20, we raised our DDM-based Target Price to S$1.40.

With FY19 results ahead of expectations, we maintain our BUY call with a revised Target Price of S$1.40.
Our bullish view on Ascendas India Trust is underpinned by the uplift in earnings from the planned 61% increase in floor area over the coming few years which should translate to 2-year over 12% per annum.

Mervin Song CFA DBS Group Research | Derek Tan DBS Research | https://www.dbsvickers.com/ 2019-04-26

SGX Stock Analyst Report BUY MAINTAIN BUY 1.40 UP 1.250