KEPPEL DC REIT (SGX:AJBU)
Keppel DC REIT - In A Mission Critical Sweet Spot
- Keppel DC REIT's 1Q20 DPU grew 8.6% y-o-y.
- COVID-19 pandemic has expedited the adoption of technology.
- Raise Fair Value to S$2.54.
1Q20 results met our expectations
- Keppel DC REIT (SGX:AJBU)’s 1Q20 results came in within our expectations. Gross revenue and NPI jumped 25.5% and 28.3% y-o-y to S$60.3m and S$55.4m, respectively.
- DPU rose 8.6% y-o-y to 2.085 S cents, and this formed 23.5% of our FY20 forecast.
Operational metrics stable; robust industry outlook
- Operationally, Keppel DC REIT’s portfolio occupancy declined marginally by 0.2 ppt q-o-q to 94.7%, as there was a tenant which downsized its operations at KDC SGP 2, although this tenant also renewed its lease for the remaining space it was occupying.
- Portfolio WALE remains long at 8.3 years, with only 4.0% and 8.7% of its leases expiring in FY20 and FY21, respectively.
- Management highlighted that its operations have not experienced any disruptions despite the COVID-19 outbreak, given that its data centres are mission critical facilities. In fact, the COVID-19 pandemic has expedited the adoption of technology, and the current level of data usage is something which was only expected to be seen when 5G is rolled out commercially.
- However, as clients typically contract additional rack space ahead of time (i.e. keep some spare capacity for future expansion), Keppel DC REIT does not expect to see a jump in revenue during this period. There are also potential supply chain disruptions of servers and racks which may stifle clients’ expansion plans.
- In terms of financial position, Keppel DC REIT’s aggregate leverage was healthy at 32.2%. We believe Keppel DC REIT will seek to make acquisitions this year, although doing physical due diligence is a challenge now.
Expected resiliency to shine through amid subdued macroeconomic environment
- We lower our FY20F DPU forecast by 1.5%, as the development of Intellicentre 3 East Data Centre is expected to complete in 1H21, versus our 2020 expectation. Our FY21F DPU forecast is also trimmed slightly by 0.7% on weaker AUD to SGD assumptions.
- Given the expected resilience of Keppel DC REIT and expedited secular growth trends in the data centre industry, we lower our cost of equity assumption from 6.7% to 6.4%, and increase our terminal growth rate by 25 bps to 2.75%. Consequently, our fair value estimate is bumped up from S$2.26 to S$2.54.
- See Keppel DC REIT Share Price; Keppel DC REIT Target Price; Keppel DC REIT Analyst Reports; Keppel DC REIT Dividend History; Keppel DC REIT Announcements; Keppel DC REIT Latest News.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-04-23
SGX Stock
Analyst Report
2.54
UP
2.260
