- We initiate coverage of Keppel DC REIT (SGX:AJBU) with a BUY and a DDM-based target price of S$2.40. We believe it will benefit from demand tailwinds arising from digitalization, cloud migration and AI adoption.
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Secular demand drivers, manageable supply
- DCs are poised to benefit from growth in data generation and consumption, enterprise cloud adoption, AI usage and evolving standards for cybersecurity and data protection. DC Byte forecasts high-teens demand CAGR for global DCs from 2024-28.
- Keppel DC REIT’s footprint geographies of Europe and Asia are also expected to show a similar growth trajectory. Supply, especially in Europe is constrained due to power and land availability. Our TMT analyst, Hussaini Saifee, has a positive view on Asean data centres on the back of a multi-year growth cycle.
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Strong sponsor, favourable cost of capital
- Keppel DC REIT’s sponsor is Keppel DC Investment Holdings Pte. Ltd., a wholly owned entity of Keppel (SGX:BN4).
- Keppel has more than a decade of experience in designing, building and managing DCs and related digital infrastructure including telecom, submarine cables and power. The group has 650MW of gross IT capacity and is scaling it up to 1.2GW. It is also exploring innovative concepts such as 1GW nearshore net-zero DCs. As such, Keppel DC REIT has growth opportunities, which is further enabled by low gearing of 30.2% and an attractive cost of equity (~4.3% yield).
Strong attributes command premium valuation
- Read more at SGinvestors.io.
