DBS maintains 'buy' rating for CLINT, whose project pipeline shows 'insatiable' growth potential

The DBS analysts have lowered their target price to $1.45 from $1.50 previously.

DBS Group Research analysts Derek Tan and Dale Lai have maintained their “buy” ratings for CapitaLand India Trust (CLINT) with a lower target price of $1.45, down from $1.50 previously, citing its “insatiable inorganic growth potential”.

In their report dated May 17, the analysts write that CLINT is one of the fastest growing Singapore REITs (S-REITs) with an “in-built pipeline” and a robust dividend per unit (DPU) growth outlook as it executes its acquisitions and development projects.

They have adjusted their DPU estimates to account for drops in the Indian Rupee (INR) rate to 61 from 55, the contribution from IT Park Pune and the revision of fundraising estimates to $150 million per annum.

Based on their revised estimates, they say that CLINT offers an “attractive” three-year compound annual growth rate (CAGR) of 7%, mainly on the back of recovering cash flows from its portfolio and planned acquisitions and developments within its pipeline of projects,  with more upside if it delivers more acquisitions, they explain.

Their revised target price of $1.45 is based on a dividend discount model (DDM), with an attractive medium-term yield of over 9% in the medium term at this level.

According to Tan and Lai, CLINT’s acquisitions and forward funding projects continue to complement its steady earnings growth. “CLINT is well positioned for the next leg of growth with the recent completion of its acquisition of its sponsor’s asset in Pune with an additional gross floor area (GFA) growth of over 60% in the coming years.”

CLINT recently received approvals from unitholders for the planned acquisition of IT Park Pune, Hinjewadi for a total value of INR13.5 billion ($221.9 million), with the proposed acquisition to be funded through a $25 million equity issuance of the sponsor and the remainder by debt and internal resources.

The acquisition, which is expected to be completed in 1H2023 at an initial yield of some 9.4%, is expected to drive DPU by an estimated 0.4%.

In addition, CLINT continues to execute its forward funding projects, where the trust has over seven projects at various stages of construction that are expected to be completed from 2023 to
2025.

With an overall commitment of $1.1 billion out of which $321 million has already been disbursed, the manager will be looking to deploy another $804 million in phases in the coming years to fund the construction of these projects in the medium term, note the analysts.

“Over time, we remain excited about the prospects for the trust with the myriad growth initiatives in place,” they say. “We see CLINT emerging as a diversified new economy play offering exposure to IT parks, industrial property, warehouses and data centres.”

Key risks to their view include the currency risk associated with CLINT’s operating in India — the REIT derives revenues in Indian Rupees while it pays out distributions in Singdollars, giving rise to potential translation losses. Meanwhile, the rise in interest rates could also have an “overhang” on growth, say Tan and Lai.

As at 2.45pm, units in CLINT were trading flat at $1.04, with a dividend yield of 7.88%.

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