SINGAPORE (Oct 26): DBS Group Research says it is excited about Ascendas India Trust’s (a-iTrust) growth prospects and move into the emerging India warehouse industry.
The research house says it is positive on a-iTrust’s outlook, and forecasts that its distribution per unit (DPU) will improve by a compound annual growth rate of around 7% over FY17-FY20.
However, DBS is maintaining its “hold” recommendation on a-iTrust and lowering its target price to $1.15, from $1.20 previously.
In a report on Thursday, DBS lead analyst Mervin Song says a-iTrust is expected to grow “on the back of positive rental reversions given favourable demand and supply dynamics in its key markets as well as the ramp-up of earnings from recently acquired or soon to be completed developments.”
However, he cautions that the positives could be largely priced in for now.
“Due to the limited upside to our target price, we suggest that investors wait for a better entry point,” says Song. “Near term, investors should look out for the finalisation of its proposed acquisition of a warehouse portfolio, as a potential re-entry point.”
The recommendation comes after a-iTrust on Wednesday posted a 10% increase in DPU to 1.50 cents for the 2Q ended September, bringing 1H17/18 DPU up 3% y-o-y to 2.81 cents.
Total property income grew 27% to $92.8 million in 1H17/18, and net property income increased by 27% to $62.0 million.
See: Ascendas India Trust posts 3% increase in 1H DPU of 2.81 cents
According to Song, a-iTrust has access to more than 5 million sq ft of floor area through its untapped land bank and sponsor pipeline.
And it also has a strong balance sheet to back it up, with its gearing remaining stable at 30%. This gives a-iTrust an additional debt headroom of $426 million based on the current gearing limit of 45%.
“Combined with the potential expansion into the Indian modern warehouse space, a-iTrust has a visible source of growth over the long term,” Song adds.
As at 3.50pm, units of a-iTrust are trading 2.5 cents lower at $1.12, implying an estimated price-to-earnings ratio of 20.3 times and dividend yield of 5.2% in FY18.
