Keppel DC REIT (KDCREIT SP)
Keppel DC REIT is well-positioned to maintain positive momentum through 2H24 and into 2025. The company has benefited from robust demand for data centers, which will likely persist due to the ongoing digital transformation in industries. With a target price of S$2.28, this is an excellent opportunity for investors seeking long-term growth in a high-demand sector.
- Financial Results: Keppel DC REIT has consistently shown strong financial performance, driven by demand for digital infrastructure.
- Stock Impact: Positive momentum is expected to carry into 2025, leading to potential stock price gains.
- Earnings Revisions/Risks: The risk of regulatory changes in the data center market may impact profitability but remains manageable.
- Valuation: Currently priced at S$2.18, with a target of S$2.28, providing a potential upside.
- Catalysts: Continued growth in demand for cloud services and digitalization.
Keppel DC REIT (KDCREIT SP)
Positive Momentum Into 2H24 And 2025
Keppel DC REIT, Asia’s first pure-play data centre REIT, is benefitting from positive rental reversion, achieving more than 40% reversion for a major contract renewal in Singapore during 2Q24. This substantial increase reflects strong demand and tight vacancy in Singapore’s data centre market, where vacancy rates are only 1%. With more colocation leases expiring in 2H24 and 2025, the company is poised for continued revenue growth. KDCREIT maintains a “BUY” rating with a target price of S$2.28.
Singapore’s Tight Data Centre Market
Singapore’s data centre market is the most power-constrained globally due to strict government policies. The government imposed a moratorium on building new data centres from 2019-2022 to meet climate commitments, which was only recently lifted. This has resulted in extremely tight vacancy and surging rental prices. In July 2023, the Infocomm Media Development Authority (IMDA) awarded 80MW of capacity to four data centre operators, but new supply will not come online until 2026, keeping rents elevated.
Focus on High-Value Colocation Leases
KDCREIT has strategically focused on high-value colocation leases, accounting for two-thirds of its rental income. Colocation providers like KDCREIT are responsible for facility management, including power, cooling, backup systems, and physical security. These leases, particularly in Singapore, have short WALE (Weighted Average Lease Expiry), allowing them to be repriced more rapidly in a rising market. With several large colocation leases up for renewal in 2H24 and 2025, KDCREIT expects continued revenue growth, with projected revenue increases of 8% in 2H24 and 10% in 1H25 .
Financial Targets:
- Keppel DC REIT: Target price of S$2.28.
Recommendation Date:
Broker Information:
- UOB Kay Hian issued the original investment report.
