Keppel DC REIT - DBS Research 2022-06-03: Yields That Are Too Hard To Ignore

Keppel DC REIT - Yields That Are Too Hard To Ignore

KEPPEL DC REIT (SGX:AJBU) | SGinvestors.ioKEPPEL DC REIT (SGX:AJBU)
  • Recent acquisitions to drive organic growth. The recent completion of the Guangdong Data Centre and London Data Centre has reignited optimism for Keppel DC REIT (SGX:AJBU)’s growth trajectory. With data centres becoming increasingly expensive, Keppel DC REIT has these recent acquisitions to rely on to drive organic growth in the near term while it continues to hunt for the next accretive acquisition.
  • We have revised our earnings estimates for Keppel DC REIT to take into account the partial default from DXC that would lower revenues by ~S$3.7m per annum over the next three years. We have also factored in higher operating costs that are mainly due to higher utility costs.
  • To account for the rising interest rate environment, we have also taken a more conservative approach to assume a 10bps increase in overall borrowing costs. The above said, we believe these could have been factored into Keppel DC REIT's share price.
  • In our earlier projections, we have assumed S$300m of acquisitions by the end of FY22. With accretive acquisitions looking more challenging in the backdrop of rising interest rates, we lowered our acquisition assumptions to S$100m by the end of FY22.
  • With these adjustments, our DPU projections is for Keppel DC REIT lowered by ~7% over the next two years; and, our target price for Keppel DC REIT is lowered to S$2.40. This implies a target yield of between 4.2% to 4.5% over the next three years, which we believe is fair, as Keppel DC REIT continues to offer growth, albeit at a slower pace.
  • With the more conservative assumptions, we also believe that there could be upside potential to our estimates if Keppel DC REIT delivers an acquisition valued at more than S$100m, or if it is completed earlier than expected.
  • At our revised target price of S$2.40, we maintain our BUY recommendation on Keppel DC REIT, as this implies a potential total return in excess of 20% from current levels.



Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.



Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-06-03
SGX Stock Analyst Report BUY MAINTAIN BUY 2.40 DOWN 2.800




Previous report by DBS Research:
2022-01-25 Keppel DC REIT - Every Byte Counts

Target prices by 3 other brokers at Keppel DC REIT Target Prices.
Listing of broker reports at Keppel DC REIT Analyst Report.

Relevant links:
Keppel DC REIT Share Price History,
Keppel DC REIT Announcements,
Keppel DC REIT Dividends & Corp Actions,
Keppel DC REIT News Articles





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