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Keppel DC Reit share price: 3 key trading highlights from H1 2020

Keppel DC Real Estate Investment Trust (REIT) (SGX: AJBU) released its first half (H1) financial results for fiscal 2020 after the market closed on Tuesday 21 July 2020. Here are three main highlights from the data centre-focused REIT’s latest financial update.

Keppel DC Real Estate Investment Trust (REIT) (SGX: AJBU) released its first half (H1) financial results for fiscal 2020 after the market closed on Tuesday 21 July 2020.

Here are three main highlights from the data centre-focused REIT’s latest financial update.

1. Keppel DC Reit increases DPU (dividend) by 13.6%

The company saw its gross revenue increase by 29.8% year-on-year in the first half of 2020 ended 30 June 2020 to S$124 million.

Net property income grew 32.1% to S$114.2 million in H1 2020, up from S$86.5 million in H1 2019.

Property expenses increased slightly by 8.1% year-on-year to S$9.7 million.

In light of the above, the firm delivered a distributable income of S$75 million for H1 2020, 38% higher compared to H1 2019. It attributed the higher distributable income to the acquisitions of Keppel DC Singapore 4 and DC1 in the last quarter of 2019, as well as the addition of Kelsterbach Data Centre in May 2020.

Accordingly, Keppel DC REIT declared a distribution per unit (DPU) of S$0.0438 for H1 2020, 13.6% higher than H1 2019’s S$0.039.

Based on Keppel DC Reit’s closing share price of S$2.540 on 30 June 2020, the REIT’s annualised distribution yield was 3.44%.

Read more: 5 Singapore REITs to watch for the rest of 2020 – Far East Hospitality Trust, Keppel REIT, A-REIT, CapitaLand Mall Trust and Frasers Centrepoint Trust

2. Outlook: ‘well-positioned to benefit’ from data centre growth

Keppel DC Reit’s manager Keppel DC Reit Management believes that while many business sectors have been adversely hit by the Covid-19 pandemic, the technology sector continues to perform well, with widespread lockdowns encouraging the adoption of digital tools.

As such, the management believes that the data centre industry remains resilient, as it continues to support data storage and processing requirements of the digital economy.

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The company further guided that the ‘prospects for the data centre market remain robust, underpinned by strong digital trends such as rapid cloud adoption, smart technologies, big‐data analytics, and 5G deployment’.

‘Keppel DC REIT remains well‐positioned to benefit from the growth of the data centre market, supported by its established track record and enlarged portfolio of assets,’ the company stated.

‘The Manager will continue to leverage its competencies in investment, asset and capital management, and build on Keppel Group’s capabilities in project development and facilities management, to seek opportunities and strengthen its presence across key data centre hubs globally.’

3. Keppel DC Reit share price target: what’s the latest?

Following the release of its H1 report, Keppel DC Reit shares rose nearly 3% in the first 30 minutes of trading on Wednesday 22 July to a new historic high of S$2.805 per share.

IG’s market analysis show that ‘buys’ form 56% of all trades on the Keppel DC Reit counter on Wednesday. Across the week, ‘sells’ form 62% of all trades so far.

In terms of client expectations, 80% of IG client accounts with open positions in this market anticipate that the price will rise, with the remaining 20% predicting a price decline.

Meanwhile, Refinitiv data showed that the stock has received an average rating of ‘hold’ from eight brokers. Five rated it ‘hold’, two rated it a ‘buy’ and one called ‘sell’ on the stock.

The same analysts gave the stock an average 18-month share price target of S$2.511, representing a downside of 8.7% from the last traded price.

Keppel DC Reit shares are trading at S$2.74 per share as at 14:15 SGT on 22 July 2020.

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  • Create a live or demo IG Trading Account, or log in to your existing account
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Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Daily Financial News

Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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