930 Brokers' Digest

54 cents BUY (DBS Group Research)

57 cents OUTPERFORM (Credit Suisse Research)

DBS Group Research is keeping Keppel Infrastructure Trust (KIT) at “buy”, after the trustee-manager on April 20 announced distribution per unit (DPU) of 0.93 cents for the 1QFY2020 ended March, unchanged from a year ago.

KIT also saw a 5.6% y-o-y increase in distributable cash flow to $51.5 million, led by a 22.3% increase in DCF from its Distribution & Network segment on the back of resilient performance from chemicals group Ixom.

DBS notes that the DPU in 1Q was “in line with previous quarters” despite Covid-19 challenges that led to KIT’s group revenue dropping 4% q-o-q to $406 million.

Analyst Suvro Sarkar attributes the steady DPU performance to KIT’s sufficient cash buffer, as well as its other assets — including the Keppel Merlimau Cogen Plant (KMC) power plant — performing to full capacity.

However, the brokerage will be moderating its Ebitda forecast for FY2020 and FY2021 by around 17% and 11% respectively.

“[This is] owing to the expected impact of the Covid-19 situation in Ixom in particular, including translation impact arising from a weaker Australian dollar,” Sarkar says.

The analyst believes the Ixom acquisition was a “step in the right direction”, as the chemicals group helps provide a much-needed diversification to KIT’s portfolio. “It diversifies the asset base, stabilises Net Asset Value (NAV) decline... and creates organic growth potential, which was largely missing till now,” says Sarkar.

“We believe there is room for yield compression to go below 7% levels once investors show renewed confidence in KIT’s credit profile and long-term cash flow sustainability,” he adds.

On the whole, DBS takes a positive yet measured outlook to KIT’s FY2020 revenue forecast, due to its sufficient cash flow and healthy balance sheet.

“With the divestment of its 51% stake in DC One to Keppel DC REIT in 4QFY2019, combined with the equity fund-raising (EFR) exercise and the perpetual securities issuance earlier in 2019, the trust’s gearing profile further has improved significantly,” says Sarkar, noting that KIT’s net leverage had improved to 34% by end 1Q2020 from 41% at end FY2018.

“This puts the trust on a firm footing for the future. Even without raising new equity, the trust can look to finance new acquisitions of around $500 million or more, given the debt headroom it now has,” he adds. — Felicia Tan

CDL Hospitality Trusts

Price targets:
$1.30 BUY (DBS Group Research)

$1.03 NEUTRAL (RHB Group Research)

65 cents UNDERPERFORM (Macquarie Research)

$1.05 BUY (HSBC Global Research)

$1.66 OUTPERFORM (Daiwa Securities Research)

$1.34 BUY (UOB Kay Hian Research)

While the hotel industry has been hit by a slowdown in travel arising from the Covid-19 pandemic, strong fundamentals and pent-up demand has seen analysts express cautious optimism that CDL Hospitality Trusts (CDREIT) will successfully weather the crisis.

While CDREIT’s local hotels — which comprise 65% of its asset portfolio — remain open, all onsite facilities have been closed until June 1, as part of Singapore’s extended circuit breaker measures.

But there has been some consistent demand for rooms, as the government has booked the hotels as accommodation for returning travellers serving as their 14-day stay-at-home notices.

Exposure to overseas markets, however, has meant that earnings will nevertheless be significantly affected in the coming year.

“With strict restrictions on travel, quarantines and complete lockdown of cities imposed across various markets in which CDREIT operates, most of its overseas properties (UK, Germany, Italy, Australia and New Zealand) are either closed on a temporary basis or operating at low occupancies. Management therefore expects an adverse impact on its earnings for 1H20, and an uncertain outlook beyond that,” said RHB analyst Vijay Natarajan.

This uncertainty has caused RHB to maintain its “neutral” call and cut its forecasted distribution per unit (DPU) for FY2020–2021F by 48%, 25% and 15% to factor in lower occupancy and room rates.

Despite the global uncertainty and slackening demand, Natarajan believes CDREIT is unlikely to face cash flow woes in the coming year. The trust has a gearing ratio of close to 37.3% and a robust balance sheet with 55% of its borrowings in the form of fixed interest rates as of Dec 31, 2019.

The firm also possesses cash reserves of $100 million and $1.5 billion in unused financing facilities, placing it in a strong financial position to weather the pandemic.

Natarajan anticipates a quick medium-term rebound in FY2021 due to pent-up demand for travel from individuals and corporates.

“CDREIT offers one of the cheapest exposures to the upturn in the Singapore market,” says DBS Group Research analyst Derek Tan. “The implied price per key for CDREIT’s Singapore portfolio stands at close to $500,000 at the current share price of 94 cents, below asking prices for hotels in Singapore which are in excess of $1 million per key.” — Ng Qi Siang

Ascendas REIT

Price targets:
$3.00 NEUTRAL (RHB Group Research)

$2.70 NEUTRAL (Macquarie Research)

$3.31 ACCUMULATE ((Phillip Securities Research)

$3.10 BUY (Jefferies Research)

$3.24 BUY (Goldman Sachs Research)

$3.45 BUY (DBS Group Research)

With a diversified portfolio of 200 industrial assets across three different geographies, Ascendas Real Estate Investment Trust (A-REIT) is expected to stay resilient despite the recessionary outlook posed by the Covid-19 pandemic.

The defensive counter is also backed by its experienced management team, strong sponsor and good operational track record, says RHB Group Research analyst Vijay Natarajan.

But despite its strengths, RHB is keeping its “neutral” call on A-REIT, with a slightly lower target price of $3.00 — down from $3.10 previously.

“The stock’s current valuation of 1.3 times FY2020 price-to-book ratio is not attractive enough,” Natarajan says in an April 20 report.

He notes that A-REIT’s retail, hospitality and leisure segments are expected to be most impacted by the Covid-19 outbreak.

But these segments, he adds, account for just 5% of the REIT’s gross monthly income.

Meanwhile, demand is expected to remain strong for its data centres, logistics & supply chain management, and biomedical sciences segments, which account for 5.6%, 12.2% and 11.3% of gross monthly income respectively.

“Overall A-REIT’s income is diversified across more than 20 sectors, with no particular segment accounting for more than 15% of income,” Natarajan adds.

At the same time, the analyst does not expect any drastic cuts to A-REIT’s nearterm distribution per unit (DPU).

Channel checks by RHB show that the proportion of industrial tenants who have requested rent deferrals remain low, at less than 5%. Nevertheless, the research house believes rents could still come under pressure, as about 19% of leases are due for renewal in FY2020.

Amid the current market uncertainty, Natarajan says “more industrial tenants will be inclined to extend their current leases at lower rents, rather than move to a new premise and incur additional capex”.

“Overall, we expect portfolio occupancy to stay about 90% but rent reversions are likely to be in -2% to 0% range compared to +6% in FY2019,” he adds. — Samantha Chiew