SINGAPORE (Dec 4): OCBC Investment Research is maintaining its “hold” call on Mapletree Industrial Trust (MIT) with a higher fair value estimate of $2.06 compared to $1.92 previously, after raising its FY19 distribution per unit (DPU) projection by 0.9%.
This is to account for the trust’s anticipated entry into the overseas data market via its proposed acquisition of a data centre portfolio in the US by the way of a joint venture (JV) with its sponsor, Mapletree Investments – which has led to the research house raising terminal growth estimates to 1.2% from 1% previously.
To recap, MIT in Oct entered a 40-60 JV, Mapletree Redwood Data Centre Trust, with its sponsor to acquire a portfolio of 14 data centres in the US for US$752.2 million ($1 billion).
See: Mapletree Industrial Trust in JV to acquire 14 data centres in US for $1.02 bil
In a Monday report, lead analyst Andy Wong notes that the higher growth projections have been offset in part by an increased cost of equity assumption of 7.8% compared to 7.5% previously, which has been adopted to account for higher operational and regulatory risks to be faced by the MIT as it enters a new market.
He also sees headwinds facing MIT’s core portfolio of industrial assets in Singapore, with supply pressures as one such example.
As such, the research house has also trimmed its FY18 DPU forecast by 0.5%.
Nonetheless, Wong cites 451 Research’s projections for an increase in demand for worldwide insourced and outsourced data over 2015-2020 in terms of 5.3% CAGR by net operation sq ft, and believes this growth will be underpinned by higher adoption of cloud services, big data requirements, and the proliferation of the Internet of Things (IoT).
“We are supportive of management's move to broaden its footprint in the data centre industry and see it as a paradigm shift to fuel its next phase of growth. However, despite our higher fair value, we are maintaining our ‘hold’ rating as we believe positives have been largely priced in,” explains Wong.
As at 2:53pm, units in MIT are down by 1 cent at $1.98, or 5.97 times FY18F distribution yield.
