| LIM & TAN |
LIM & TAN |
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CSE Global Limited ($0.415, down 0.005), a global systems integrator providing automation, communications and electrification solutions, today announced that it has secured two major contracts worth US$110.2 million (approximately S$150.6 million) in the United States of America (“USA”). Both contracts are for the design and manufacturing of power distribution centres, as well as the integration of complex electrical and control systems and equipment in the USA, which are slated for execution between 2024 and 2025.
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Keppel REIT’s ($0.84, unchanged) 9M 2023 property income increased 5.0% year-on-year to $172.6 million. Distributable income including anniversary distribution (one-off distribution of $15million) was 1.1% lower year-on-year at $163.6 million due to higher borrowing costs, as well as higher property tax and utility costs, which are offset partially by higher property income, rental support and anniversary distribution of $15 million. As at 30 September 2023, Keppel REIT’s aggregate leverage was 39.5% with 76% of its borrowings on fixed rates. All-in interest rate was 2.85% per annum, with interest coverage ratio and adjusted interest coverage ratio at 3.3 times and 2.9 times respectively. Weighted average term to maturity of borrowings was 2.7 years. Exposure to foreign currency is appropriately managed as Keppel REIT adopts natural hedge to the extent practicable and hedges at least 50% of its foreign currency denominated income on a rolling 6-month basis. As at 30 September 2023, the Australian Dollar, South Korean Won and Japanese Yen denominated loans formed approximately 17%, 4% and 3% of total borrowings respectively Comments: Headline Dividend distribution fell 1.1% to $164 million, but if we exclude the one-time anniversary distribution of $15 million, dividend distribution would have declined 10% to $149 million, impacted by higher borrowing, higher property tax as well as utility costs. While upside to consensus target price (of $0.99) of 18%, dividend yield of 6-7% and price to book of 0.6x seems attractive, the headwinds from higher for longer rates, coupled with inflationary cost pressures and limited upside to rents would likely limit upside potential for now. We maintain “HOLD” recommendation on Keppel REIT. |
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OCBC SECURITIES |
DBS RESEARCH |
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Keppel DC REIT (KDCREIT SP) - Still awaiting acquisitions as higher finance costs bite
Keppel DC REIT (KDCREIT) is a strong proxy to the growing demand for data centre space, underpinned by increasing digitalisation and cloud adoption trends. Its tenants come from fast growing industries such as internet enterprise, information technology services, telecommunications and financial services. It is also one of the most defensive REITs given its long portfolio weighted average lease to expiry (WALE) of 7.8 years by lettable area and 4.7 years by rental income, while it also has relatively low debt maturities from FY23 to FY25. However, we have some concerns over the credit profile of its master lessee at its Guangdong data centres. HOLD.
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Keppel DC Reit
Alert: Post results takeaways – Focus on Guangdong leases
What has happened? We hosted KDCREIT for their post-3Q23 business update release and noted that there has been quite a few questions surrounding the master lease at their Guangdong Data Centres. Neo Telemedia is the master-tenant at Guangdong DC 1 and 2, and will also hold this role at Guangdong DC 3 once it is completed, sometime in 4Q23. Following net losses reported in FY22, Neo Telemedia reported another net loss in 1H23, leading to a correction in their share price since June 2023.
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| DBS RESEARCH | MAYBANK KIM ENG |
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Keppel Reit
3Q23 Results Analysis: Portfolio holding up better than expected
What’s New? Stable 3Q23 results; strong operational improvements with higher occupancy and strong positive rental reversions. KREIT delivered a relatively stable 9M23 with estimated DPU fell marginally by 1.9% y-o-y to 4.35 Scts, in line with our estimates. The decline was mainly due to higher property expenses and interest cost but partially mitigated by Anniversary Distribution of S$15m. Similarly, 3Q23 estimated DPU fell 1.1% y-o-y (+2% q-o-q) to 1.45 Scts. 3Q23 revenue and NPI grew 6% y-o-y and 2.3% y-o-y respectively but DI were mainly impacted by higher interest cost as expected. Gearing inched up marginally q-o-q to 39.5% (from 39.2% in 2Q23) while average cost of debt held relatively stable at 2.85% (2.84% in 2Q23). There are no major refinancing requirements in 2023. Management is in talks with lenders to refinance FY24 debt expiries and expects average cost of debt to trend up to mid-3% based on current interest rates. Overall operations remained healthy with portfolio occupancy continue to trend upwards to 97.9% (ex-Blue & Williams) vs 97% in 2Q23 while delivering strong positive rental reversions of 10.7% in 3Q23, mainly driven by Singapore (+10.6% in 3Q23). All markets saw improved occupancy with Australia recorded the largest improvement after 8 Chifley achieved 97.1% occupancy in 3Q23, up from 87.4% in 2Q23. We understand the government tenant which was reported to take up 100k sqft in 2Q23, took up more space at 8 Chifley. Other notable occupancy improvements: i) Blue & William’s committed occupancy increased to 42.5% from 37.7% in 2Q23; ii) KR Ginza II occupancy increased to 74.5% from 36.3% after securing a new renewable energy solutions tenant.
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Keppel REIT (KREIT SP) High funding cost offsets steady operations
Lower distribution, reasonable valuation KREIT’s 9M23 distributable income (DI) of SGD163.6m fell 1.1% YoY and achieved 74% of our full-year forecast. 3Q23 DI fell 0.5% YoY but rose 1.5% QoQ. Occupancy rose across key assets sequentially on the back of healthy leasing momentum and continued positive rent reversions. However, higher borrowing cost led to the decline in distribution. Management remains focused on proactive portfolio and capital management. We lower DPU and our DDM-based TP by 5% to SGD1.00, but maintain BUY on the back of 7% yield and reasonable valuation of 0.7x FY23E PB.
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