Schneider Electric SE: Capitalizing on Secular Growth Trends
Schneider Electric SE (Ticker: SU FP) is strategically poised to benefit from multiple secular trends beyond just artificial intelligence (AI). While the company’s exposure to AI has been a key focus for investors, its involvement in grid modernization and decarbonization of buildings further strengthens its position as a significant player in sustainability and energy efficiency.
AI Concerns and Market Sentiment
The market has recently questioned the energy intensity and cost implications of AI models, particularly due to news surrounding DeepSeek’s AI model. This has impacted stocks like Schneider Electric, Siemens Energy, and Legrand. Despite the temporary dip in sentiment, Schneider remains a strong contender in the AI-supporting infrastructure space.
Focus on Peer Order Intake
Schneider Electric’s upcoming performance will likely be analyzed through the lens of peer order intake in related sectors. ABB’s Electrification division and Siemens Smart Infrastructure division are key proxies to assess market trends. While Schneider does not report individual orders, its annual backlog data remains promising.
Exposure to Diverse Growth Themes
Aside from AI, Schneider benefits from themes such as grid modernization, decarbonization of buildings, and the broader digital transformation across industries. These trends offer stability and growth potential, ensuring its relevance across various sectors.
Guidance and Valuation
For 2025, Schneider is expected to achieve 6-9% organic growth and 40-60 basis points of EBITA margin progression. The company anticipates no significant FX-related margin impacts. Consensus expectations align at 7.9% organic growth and 60 basis points of margin improvement. The fair value estimate remains steady at EUR 271. Key risks include macroeconomic uncertainties and execution challenges.
ESG Strength
Schneider Electric maintains its strong ESG rating since July 2020. With 80% of its revenue targeted from environmentally friendly solutions by 2025 compared to the 2019 baseline, the company continues to lead in clean technology and governance practices. The recommendation is BUY.
AIMS APAC REIT: Steady Performance with Strategic Moves
AIMS APAC REIT (Ticker: AAREIT SP) continues to demonstrate resilience and strategic decision-making. Its 9MFY25 distribution per unit (DPU) grew by 1.1% year-on-year to 7.07 Singapore cents, aligning with expectations.
Revenue and Rental Reversion
Gross revenue rose 5.7% to SGD 139.1 million, while net property income (NPI) increased by 1.9% to SGD 99.6 million. This growth was driven by sustained positive rental reversions, which recorded an impressive 28.2% for 3QFY25. However, rental reversion is expected to moderate as signing rents align with headline rents and new supply enters the market.
Portfolio Occupancy and Debt Management
Portfolio occupancy dipped slightly from 96.7% to 96.4%, which management attributes to transitory factors. Despite this, 80% of vacated spaces were backfilled with rents approximately 20% higher. The average cost of debt remains stable at 4.4%, with 70% of the debt hedged at fixed rates. Furthermore, the REIT has no debt maturing in FY25 and FY26, ensuring financial stability.
Opportunistic Divestment
AAREIT seized an opportunity to divest 3 Toh Tuck Link, a property with unleased office space, at a 32.5% premium over the last valuation. The sale, expected to complete in 4QFY25, highlights management’s strategic capital allocation.
ESG Development
AAREIT’s ESG initiatives have significantly improved its environmental score, which is now 17% above the industry average. This is attributed to the completion of Phase 1 of its rooftop solar panel installation and increased green-certified buildings. Phase 2 is underway, further enhancing its sustainability profile. The recommendation is BUY.
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