Brokers’ take: UOBKH initiates ‘buy’ on Keppel DC Reit; expects AI to boost demand for data centres

UOB Kay Hian has initiated coverage on Keppel DC Reit with a “buy” recommendation and target price of S$2.10.

It believes the real estate investment trust (Reit) could benefit from the potential rise in artificial intelligence (AI) integration into daily lives as AI is computationally intensive.

This means AI has the potential to sharply boost demand for data centre space in order to house computer servers and data storage, UOBKH said in a report dated Jan 11.

Its S$2.10 target price implies a potential upside of 14 per cent from the counter’s last trading price of S$1.84 as at 11.36 am on Monday. Keppel DC Reit’s units were trading flat at the time.

The research team noted that Keppel DC Reit is trading at 1.33 times its net asset value, a slight premium to domestic peers but a significant discount against overseas peers in the Asia-Pacific and the US regions.

The Reit also has an FY2024 distribution yield of 5 per cent, which is more attractive compared to Asia-Pacific peers (1.7 per cent) and US peers (2.1 per cent).

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Keppel DC Reit is also differentiated by its focus on colocation data centres, which have generated stronger positive rental reversions in the third quarter of 2023.

Furthermore, it has a pipeline of potential acquisitions for data centres under development by sponsor Keppel Group’s private data centre funds and Keppel Telecommunications and Transportation worth more than S$2 billion.