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DBS analysts lower TP for CLINT despite strong 3QFY2023 results, due to depreciation of INR-SGD

Analysts Dale Lai and Derek Tan have maintained their “buy” call, but lowered their target price to $1.35.

DBS Group Research has lowered their target price for Capitaland India Trust (CLINT) to $1.35 from $1.45 previously, despite acknowledging that the REIT is one of the fastest growing Singapore REITs (S-REITs). This is mainly due to a depreciation of the INR-SGD exchange rate.

Analysts Dale Lai and Derek Tan have maintained their “buy” call, following the REIT’s 3QFY2023 operating update in which revenues and net property income came in about 23% and 22% higher y-o-y. This was driven by the contribution from ITPH Block A and ITPP-H at INR3,752 million ($61 million) and INR3,041 million respectively.

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“Due to the depreciation of the INR-SGD exchange rate by about 10% to 61.5, underlying revenue in Singapore dollar terms continued to grow but at a slower 13-14% (3QFY2023) and 6-9% (9MFY2023),” the analysts say.

However, Lai and Tan say that CLINT is the fastest growing REIT with an in-built pipeline. The REIT has a projected three year distribution per unit (DPU) CAGR of 7% on the back of recovering cash flows from its portfolio and planned acquisitions and developments within its pipeline of projects.

The analysts say that CLINT has a “healthy” balance sheet for this quarter, as its gearing declined to about 37% after a recent balance sheet recapitalisation exercise. Its interest coverage ratio remains stable at 2.6 times with effective cost of debt steady at 6.3% due to minimal rollovers, they add.

CLINT has a “mixed occupancy performance”, but the analysts maintain that it is likely to be transitory. Portfolio occupancy rates were fairly stable at 91%, with a dip in occupancy rates at aVance Hyderabad, they note. Meanwhile, Block A committed occupancies now stand at 100%, and underpins a stronger organic growth performance in 2024.

“Rental reversions were generally positive to the tune of 1% to 15% for most properties except for ITPC and Cybervale which were due to the expiry of certain short-term leases that were signed at high rates. That said, we understand that passing rents for its portfolio are now above pre-COVID-19 levels,” the analysts say.

Lai and Tan say they remain encouraged that CLINT’s inorganic growth strategies remain intact with the trust expanding its presence in Chennai through an acquisition of an industrial facility, and the development of a warehouse. They note that with over $800 million of development commitments in the coming years, the growth pipeline for CLINT remains robust.

CLINT is also embarking on the development of its data centre arm with the construction of four data centres, with a valuation between $10 million to $15 million per megawatt of IT load. This could result in the total gross development value of $1.2 billion to $1.4 billion.

“Given the significant capex needs to grow this arm, we see potential realisation of value through selling a stake in the data centres into a CapitaLand led private fund sometime in 2024,” say Lai and Tan. “We remain excited about the prospects for the trust with the myriad growth initiatives in place. Over time, we see CLINT emerging as a diversified new economy play offering exposure to IT parks, industrial property, warehouses, and data centres.”

Finally, the analysts conclude that currency remains a headwind for CLINT. Their estimates are cut by 2%-5% on the back of continued INR-SGD weakness which has depreciated by a further 5% since the start of the year.

“We have reflected current spot rates in our estimates, resulting in a cut in our target price to $1.35/unit. Upside to our target price will come from any potential stake sale in the portfolio (including data-centres) which would raise net asset value,” they say.

Despite this cut in target price, the analysts see an upside of over 40% for CLINT. The 15% correction in share price year-to-date is an attractive opportunity for investors, they say. With a p/b of 0.9x, there is good value with the stock offering a forward yield of close to about 9.0%.

Units in CLINT are trading 1 cent higher or 1.04% up at 97 cents.

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