SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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<ul>
<li>
Digital Core REIT is a pure-play data centre S-REIT sponsored by Digital Realty – the largest owner, operator, developer and acquirer of data centres globally. The IPO Portfolio has an appraised value of US$1.4 billion and comprises of 10 institutional quality data centres located in the United States and Canada, with 100% occupancy rates. 
	 </li>
	<li>
Its Sponsor, Digital Realty, is the 6th largest US-listed REIT with a market cap of US$44 billion and over 290 data centres across 47 metros throughout 24 countries serving more than 4,000 customers. 
	 </li>
	<li>A total of 26 cornerstone investors have subscribed for an aggregate of 414.8 million units, which represents 36.9% of the units in issue after the offering. The REIT has distribution yields of 4.75% for Forecast Year 2022 and 5.00% for Projection Year 2023 based on the offer price of US$0.88 per unit. </li>
</ul>
 

Digital Core REIT is an S-REIT established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally which are used primarily for data centre purposes, as well as assets necessary to support the digital economy. 
Its initial portfolio is comprised of 10 fully-occupied freehold institutional quality data centres in the United States (Silicon Valley, Los Angeles, and Northern Virginia) and Canada (Toronto) with an aggregate appraised value of US$1.4 billion.
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2021-12/Capture_3.PNG' alt='Digital Core REIT' />
 </figure>
 <div class='content-caption'>Digital Core REIT</div>
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Key Investment Highlights based on the <a href="https://links.sgx.com/FileOpen/Digital_Core_REIT_Prospectus_(29_Nov_2021).ashx?App=IPO&amp;FileID=6328">IPO Prospectus</a> 
 

<ol>
<li>
Focused on highly attractive data centre industry driven by digital transformation

	<ol>
<li>
Robust demand driven by digital transformation – North America’s data centre market is expected to grow at a CAGR of approximately 15% from 2020 to 2024, with hyperscale demand projected to grow at a CAGR of approximately 23% driven by digitalisation, new technologies and digital trends.</li>
		<li>
‘Sticky’ customer relationships – Data centre infrastructure is a crucial component of a modern company’s operations and migrating this infrastructure to a different physical location presents switching costs and risks. The REIT has a portfolio occupancy of 100%, underpinned by high historical customer retention rate of 95.8% with significant customer investment further enhancing customer stickiness. 
		 </li>
	</ol>
</li>
	<li>
High-Quality, Mission-Critical portfolio across top data centre markets
	<ol>
<li>
Located in key strategic markets – In areas with long-term track record of stabilised portfolio occupancy and minimal customer churn. 73.5% of the IPO Portfolio situated in Northern Virginia and Northern California, the #1 and #2 largest data centre markets in the United States based on Base Rental Income for the month of June 2021.</li>
		<li>
Stable and resilient portfolio with blue-chip customer base – Top customers in portfolio consist of leading global cloud providers, global colocation and interconnection providers, social media platforms and IT solutions providers. Additionally, the REIT has a Weighted Average Lease Expiry (WALE) of 6.2 years as of June 2021. 
		 </li>
	</ol>
</li>
	<li>
Exclusive vehicle of Best-in-class Global Data Centre Sponsor
	<ol>
<li>
Industry-leading Sponsor – The Sponsor, Digital Realty, is one of the largest listed US REITs with a well-established track record and public market expertise. Sponsor provides a global right of first refusal (ROFR) to Digital Core REIT and is committed to the growth and success of the REIT.</li>
		<li>
Strong management team and board of directors – Digital Core REIT will be managed by longstanding Sponsor team members with extensive data centre experience, along with real estate and finance industry veterans serving as independent directors. 
		 </li>
	</ol>
</li>
	<li>
Balance sheet and initial scale positioned for substantial growth
	<ol>
<li>
Low gearing - As at the Listing Date, Digital Core REIT is expected to have an Aggregate Leverage of approximately 27.0%, which is significantly below S-REITs average of 37.4%.</li>
		<li>
Access to multiple capital sources – Leverage on its Sponsor’s track record in accessing diverse capital sources. Over the last 17 years, the Sponsor has accessed the full menu of capital, including both public and private equity sources as well as debt across numerous currencies. 
		 </li>
	</ol>
</li>
	<li>
Total return profile 
	<ol>
<li>
Returns – Total return of 10.01% comprising distribution yield of 4.75% for Forecast Year 2022 and Dividend Per Unit (DPU) growth of 5.26% from Forecast Year 2022 to Projection Year 2023.</li>
	</ol>
</li>
</ol>
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2021-12/Capture_4.PNG' alt='Weighted Average' />
 </figure>
 <div class='content-caption'>Weighted Average</div>
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Key strategies

<ol>
<li>
Proactive asset management and asset enhancement strategy to achieve growth in revenue and net property income, maintain occupancy levels and facilitate asset enhancement opportunities. 
</li>
	<li>
Investments and acquisition growth strategy to pursue opportunities with future income and capital growth. The Manager will endeavour to acquire data centre properties situated in growth markets that cater to population and infrastructure growth.</li>
	<li>
Capital management strategy to employ an appropriate mix of debt and equity in financing acquisitions and adopt financing policies to optimise risk-adjusted returns to Unitholders. 
	 </li>
</ol>
Key risks (page 57 of the IPO Prospectus for full list)

<ul>
<li>Parent US REIT may lose its status as a US REIT.</li>
	<li>Digital Core REIT may face significant expenditures in order to re-let data centre space.</li>
	<li>Digital Core REIT and/or the Properties may face increased competition from other properties in the market especially when the REIT expects that subsequent acquired properties will be located in areas where other competing properties are present.</li>
	<li>Digital Core REIT is dependent upon the economic climates of the markets in which the Properties are located.</li>
</ul>
 

Financials and Valuations 

<ul>
<li>Revenue decreased by 1.4% to US$100.5 million in FY2020 due to a new lease executed in 2019 where the previous customer moved out and the Sponsor successfully re-leased the entire building to a new customer for 15 years with minimal additional capital invested, the decrease was offset by higher recovery income at another property. Net property income of decreased by US$2.1 million to US$65.2 million. 
	 </li>
	<li>Net property income for six-month period ended 30 Jun 2021 was US$32.2 million and US$66.9 million for Forecast Year 2022 and US$66.5 million for Projection Year 2023. 
	 </li>
	<li>Distributable income to Unitholders for Forecast Period 2022 and Projection Year 2023 at US$53.5 million and US$56.8 million respectively. This would imply a distribution yield of 4.75% and 5.00% respectively based on an offer price of US$0.88. 
	 </li>
	<li>According to the IPO prospectus, Digital Core REIT's price to net asset value ratio (P/NAV) is 1.05x based on an offer price of US$0.88 and net asset value per unit of US$0.84.</li>
</ul>
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2021-12/Capture_5.PNG' alt='Forecasted and Projected Financial Metrics' />
 </figure>
 <div class='content-caption'>Forecasted and Projected Financial Metrics</div>
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Cluster of Industrial and Data Centre REITs on SGX

With the listing of Digital Core REIT, there will be 10 Industrial and Data Centre REITs listed on SGX.

<table class="table table-striped"><tbody>
<tr>
<td>
			Name
			</td>
			<td>
			Stock code
			</td>
			<td>
			Market Cap (S$Mil)
			</td>
			<td>
			Total Return YTD (%)
			</td>
			<td>
			 Div Yield (%)
			</td>
			<td>
			P/B
			</td>
		</tr>
<tr>
<td>
			Ascendas REIT
			</td>
			<td>
			A17U
			</td>
			<td>
			12,417.2
			</td>
			<td>
			2.4
			</td>
			<td>
			4.9
			</td>
			<td>
			1.3
			</td>
		</tr>
<tr>
<td>
			Mapletree Logistics Trust
			</td>
			<td>
			M44U
			</td>
			<td>
			8,736.9
			</td>
			<td>
			-2.3
			</td>
			<td>
			4.2
			</td>
			<td>
			1.4
			</td>
		</tr>
<tr>
<td>
			Mapletree Industrial Trust
			</td>
			<td>
			ME8U
			</td>
			<td>
			7,023.2
			</td>
			<td>
			-3.9
			</td>
			<td>
			4.9
			</td>
			<td>
			1.4
			</td>
		</tr>
<tr>
<td>
			Keppel DC REIT
			</td>
			<td>
			AJBU
			</td>
			<td>
			4,132.9
			</td>
			<td>
			-10.7
			</td>
			<td>
			4.1
			</td>
			<td>
			2.0
			</td>
		</tr>
<tr>
<td>
			ESR-REIT
			</td>
			<td>
			J91U
			</td>
			<td>
			1,905.8
			</td>
			<td>
			29.8
			</td>
			<td>
			6.3
			</td>
			<td>
			1.2
			</td>
		</tr>
<tr>
<td>
			ARA LOGOS Logistics Trust
			</td>
			<td>
			K2LU
			</td>
			<td>
			1,277.9
			</td>
			<td>
			55.6
			</td>
			<td>
			5.7
			</td>
			<td>
			1.3
			</td>
		</tr>
<tr>
<td>
			AIMS APAC REIT
			</td>
			<td>
			O5RU
			</td>
			<td>
			994.9
			</td>
			<td>
			19.9
			</td>
			<td>
			6.7
			</td>
			<td>
			0.7
			</td>
		</tr>
<tr>
<td>
			EC World REIT
			</td>
			<td>
			BWCU
			</td>
			<td>
			659.0
			</td>
			<td>
			20.7
			</td>
			<td>
			7.6
			</td>
			<td>
			0.9
			</td>
		</tr>
<tr>
<td>
			Daiwa House Logistics Trust
			</td>
			<td>
			DHLU
			</td>
			<td>
			550.1
			</td>
			<td>
			1.91
			</td>
			<td>
			6.32
			</td>
			<td>
			1.13
			</td>
		</tr>
<tr>
<td>
			Sabana REIT
			</td>
			<td>
			M1GU
			</td>
			<td>
			465.4
			</td>
			<td>
			34.3
			</td>
			<td>
			8.6
			</td>
			<td>
			0.8
			</td>
		</tr>
<tr>
<td>
			Average
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
			<td>
			14.8
			</td>
			<td>
			5.9
			</td>
			<td>
			1.2
			</td>
		</tr>
</tbody></table>
 Source: Dividend yields based on SGX REIT Chartbook November 2021, Bloomberg  (Data as of 3 Dec 2021). 

Notes: 1Total Return YTD as of IPO date; 2Div Yield forecasted for 2021 as stated in DHLT’s IPO Prospectus; 3P/B based on P/NAV with reference to NAV/unit of S$0.76 in DHLT’s IPO Prospectus.

 

Additional Information from <a href="https://links.sgx.com/FileOpen/Digital_Core_REIT_Prospectus_(29_Nov_2021).ashx?App=IPO&amp;FileID=6328">IPO Prospectus</a>

IPO details

<ul>
<li>Offer price at US$0.88 per unit</li>
	<li>Offered units 267.0 million units
	<ul>
<li>253.7 million units under Placement Tranche</li>
		<li>13.4 million units under Public Offer</li>
	</ul>
</li>
	<li>Estimated IPO market capitalisation at US$990.3 million assuming the preference shares of the parent U.S. REIT are issued on the Listing date.</li>
	<li>Balloting results: The placement tranche was approximately 19.6 times subscribed while the public tranche was approximately 16.1 times subscribed.</li>
	<li>Use of total proceeds raised from Offering, Cornerstone Units and sponsor units (US$977 million) as well as Loans, Acquisition fee in units issued to manager and Preferred shares issuance (US$363.1):
	<ul>
<li>US$1,296.0 million – Acquisition of the Properties</li>
		<li>US$44.0 million – Transaction costs</li>
	</ul>
</li>
</ul>
 

Cornerstone Investors 

<ul>
<li>The following Cornerstone Investors subscribed to 414.8 million Units at the Offer Price:
	<ul>
<li>AEW Asia Pte. Ltd.</li>
		<li>Affin Hwang Asset Management Berhad</li>
		<li>AIA Investment Management Private Limited</li>
		<li>AMP Capital Investors Limited</li>
		<li>B&amp;I Capital AG</li>
		<li>Blackrock, Inc.</li>
		<li>Cohen &amp; Steers Asia Limited</li>
		<li>DBS Bank Ltd.</li>
		<li>DBS Bank Ltd. (on behalf of certain wealth management clients)</li>
		<li>DWS Investments Australia Limited</li>
		<li>Eastspring Investments (Singapore) Limited</li>
		<li>FIL Investment Management (Hong Kong) Limited</li>
		<li>Fullerton Fund Management Company Ltd</li>
		<li>Ghisallo Master Fund LP</li>
		<li>Jane Street Financial Limited</li>
		<li>JPMorgan Asset Management (UK) Limited (for and on behalf of its clients)</li>
		<li>Kasikorn Asset Management Co., Ltd.</li>
		<li>Lion Global Investors Limited</li>
		<li>Nikko Asset Management Asia Limited</li>
		<li>Principal Global Investors (Singapore) Limited</li>
		<li>Resolution Capital Limited</li>
		<li>Schonfeld IR Master Fund Pte. Ltd. and Schonfeld Global Master Fund LP</li>
		<li>Stichting Depositary APG Tactical Real Estate Pool, As Depositary Of APG Tactical Real Estate Pool</li>
		<li>The Segantii Asia-Pacific Equity MultiStrategy Fund</li>
		<li>TMB Asset Management Company Limited</li>
		<li>Value Partners Hong Kong Limited</li>
	</ul>
</li>
</ul>
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Digital Core REIT is a pure-play data centre S-REIT sponsored by Digital Realty – the largest owner, operator, developer and acquirer of data centres globally. The IPO Portfolio has an appraised value of US$1.4 billion and comprises of 10 institutional quality data centres located in the United States and Canada, with 100% occupancy rates. 
	 
	
Its Sponsor, Digital Realty, is the 6th largest US-listed REIT with a market cap of US$44 billion and over 290 data centres across 47 metros throughout 24 countries serving more than 4,000 customers. 
	 
	A total of 26 cornerstone investors have subscribed for an aggregate of 414.8 million units, which represents 36.9% of the units in issue after the offering. The REIT has distribution yields of 4.75% for Forecast Year 2022 and 5.00% for Projection Year 2023 based on the offer price of US$0.88 per unit. 

 

Digital Core REIT is an S-REIT established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally which are used primarily for data centre purposes, as well as assets necessary to support the digital economy.  
Its initial portfolio is comprised of 10 fully-occupied freehold institutional quality data centres in the United States (Silicon Valley, Los Angeles, and Northern Virginia) and Canada (Toronto) with an aggregate appraised value of US$1.4 billion.



      
    
    Digital Core REIT


Key Investment Highlights based on the IPO Prospectus 
 



Focused on highly attractive data centre industry driven by digital transformation

	

Robust demand driven by digital transformation – North America’s data centre market is expected to grow at a CAGR of approximately 15% from 2020 to 2024, with hyperscale demand projected to grow at a CAGR of approximately 23% driven by digitalisation, new technologies and digital trends.
		
‘Sticky’ customer relationships – Data centre infrastructure is a crucial component of a modern company’s operations and migrating this infrastructure to a different physical location presents switching costs and risks. The REIT has a portfolio occupancy of 100%, underpinned by high historical customer retention rate of 95.8% with significant customer investment further enhancing customer stickiness. 
		 
	

	
High-Quality, Mission-Critical portfolio across top data centre markets
	

Located in key strategic markets – In areas with long-term track record of stabilised portfolio occupancy and minimal customer churn. 73.5% of the IPO Portfolio situated in Northern Virginia and Northern California, the #1 and #2 largest data centre markets in the United States based on Base Rental Income for the month of June 2021.
		
Stable and resilient portfolio with blue-chip customer base – Top customers in portfolio consist of leading global cloud providers, global colocation and interconnection providers, social media platforms and IT solutions providers. Additionally, the REIT has a Weighted Average Lease Expiry (WALE) of 6.2 years as of June 2021. 
		 
	

	
Exclusive vehicle of Best-in-class Global Data Centre Sponsor
	

Industry-leading Sponsor – The Sponsor, Digital Realty, is one of the largest listed US REITs with a well-established track record and public market expertise. Sponsor provides a global right of first refusal (ROFR) to Digital Core REIT and is committed to the growth and success of the REIT.
		
Strong management team and board of directors – Digital Core REIT will be managed by longstanding Sponsor team members with extensive data centre experience, along with real estate and finance industry veterans serving as independent directors. 
		 
	

	
Balance sheet and initial scale positioned for substantial growth
	

Low gearing - As at the Listing Date, Digital Core REIT is expected to have an Aggregate Leverage of approximately 27.0%, which is significantly below S-REITs average of 37.4%.
		
Access to multiple capital sources – Leverage on its Sponsor’s track record in accessing diverse capital sources. Over the last 17 years, the Sponsor has accessed the full menu of capital, including both public and private equity sources as well as debt across numerous currencies. 
		 
	

	
Total return profile 
	

Returns – Total return of 10.01% comprising distribution yield of 4.75% for Forecast Year 2022 and Dividend Per Unit (DPU) growth of 5.26% from Forecast Year 2022 to Projection Year 2023.
	





      
    
    Weighted Average


Key strategies



Proactive asset management and asset enhancement strategy to achieve growth in revenue and net property income, maintain occupancy levels and facilitate asset enhancement opportunities. 

	
Investments and acquisition growth strategy to pursue opportunities with future income and capital growth. The Manager will endeavour to acquire data centre properties situated in growth markets that cater to population and infrastructure growth.
	
Capital management strategy to employ an appropriate mix of debt and equity in financing acquisitions and adopt financing policies to optimise risk-adjusted returns to Unitholders. 
	 

Key risks (page 57 of the IPO Prospectus for full list)


Parent US REIT may lose its status as a US REIT.
	Digital Core REIT may face significant expenditures in order to re-let data centre space.
	Digital Core REIT and/or the Properties may face increased competition from other properties in the market especially when the REIT expects that subsequent acquired properties will be located in areas where other competing properties are present.
	Digital Core REIT is dependent upon the economic climates of the markets in which the Properties are located.

 

Financials and Valuations 


Revenue decreased by 1.4% to US$100.5 million in FY2020 due to a new lease executed in 2019 where the previous customer moved out and the Sponsor successfully re-leased the entire building to a new customer for 15 years with minimal additional capital invested, the decrease was offset by higher recovery income at another property. Net property income of decreased by US$2.1 million to US$65.2 million. 
	 
	Net property income for six-month period ended 30 Jun 2021 was US$32.2 million and US$66.9 million for Forecast Year 2022 and US$66.5 million for Projection Year 2023. 
	 
	Distributable income to Unitholders for Forecast Period 2022 and Projection Year 2023 at US$53.5 million and US$56.8 million respectively. This would imply a distribution yield of 4.75% and 5.00% respectively based on an offer price of US$0.88. 
	 
	According to the IPO prospectus, Digital Core REIT's price to net asset value ratio (P/NAV) is 1.05x based on an offer price of US$0.88 and net asset value per unit of US$0.84.




      
    
    Forecasted and Projected Financial Metrics


Cluster of Industrial and Data Centre REITs on SGX

With the listing of Digital Core REIT, there will be 10 Industrial and Data Centre REITs listed on SGX.




			Name
			
			
			Stock code
			
			
			Market Cap (S$Mil)
			
			
			Total Return YTD (%)
			
			
			 Div Yield (%)
			
			
			P/B
			
		


			Ascendas REIT
			
			
			A17U
			
			
			12,417.2
			
			
			2.4
			
			
			4.9
			
			
			1.3
			
		


			Mapletree Logistics Trust
			
			
			M44U
			
			
			8,736.9
			
			
			-2.3
			
			
			4.2
			
			
			1.4
			
		


			Mapletree Industrial Trust
			
			
			ME8U
			
			
			7,023.2
			
			
			-3.9
			
			
			4.9
			
			
			1.4
			
		


			Keppel DC REIT
			
			
			AJBU
			
			
			4,132.9
			
			
			-10.7
			
			
			4.1
			
			
			2.0
			
		


			ESR-REIT
			
			
			J91U
			
			
			1,905.8
			
			
			29.8
			
			
			6.3
			
			
			1.2
			
		


			ARA LOGOS Logistics Trust
			
			
			K2LU
			
			
			1,277.9
			
			
			55.6
			
			
			5.7
			
			
			1.3
			
		


			AIMS APAC REIT
			
			
			O5RU
			
			
			994.9
			
			
			19.9
			
			
			6.7
			
			
			0.7
			
		


			EC World REIT
			
			
			BWCU
			
			
			659.0
			
			
			20.7
			
			
			7.6
			
			
			0.9
			
		


			Daiwa House Logistics Trust
			
			
			DHLU
			
			
			550.1
			
			
			1.91
			
			
			6.32
			
			
			1.13
			
		


			Sabana REIT
			
			
			M1GU
			
			
			465.4
			
			
			34.3
			
			
			8.6
			
			
			0.8
			
		


			Average
			
			
			 
			
			
			 
			
			
			14.8
			
			
			5.9
			
			
			1.2
			
		

 Source: Dividend yields based on SGX REIT Chartbook November 2021, Bloomberg  (Data as of 3 Dec 2021). 

Notes: 1Total Return YTD as of IPO date; 2Div Yield forecasted for 2021 as stated in DHLT’s IPO Prospectus; 3P/B based on P/NAV with reference to NAV/unit of S$0.76 in DHLT’s IPO Prospectus.

 

Additional Information from IPO Prospectus

IPO details


Offer price at US$0.88 per unit
	Offered units 267.0 million units
	
253.7 million units under Placement Tranche
		13.4 million units under Public Offer
	

	Estimated IPO market capitalisation at US$990.3 million assuming the preference shares of the parent U.S. REIT are issued on the Listing date.
	Balloting results: The placement tranche was approximately 19.6 times subscribed while the public tranche was approximately 16.1 times subscribed.
	Use of total proceeds raised from Offering, Cornerstone Units and sponsor units (US$977 million) as well as Loans, Acquisition fee in units issued to manager and Preferred shares issuance (US$363.1):
	
US$1,296.0 million – Acquisition of the Properties
		US$44.0 million – Transaction costs
	


 

Cornerstone Investors 


The following Cornerstone Investors subscribed to 414.8 million Units at the Offer Price:
	
AEW Asia Pte. Ltd.
		Affin Hwang Asset Management Berhad
		AIA Investment Management Private Limited
		AMP Capital Investors Limited
		B&amp;I Capital AG
		Blackrock, Inc.
		Cohen &amp; Steers Asia Limited
		DBS Bank Ltd.
		DBS Bank Ltd. (on behalf of certain wealth management clients)
		DWS Investments Australia Limited
		Eastspring Investments (Singapore) Limited
		FIL Investment Management (Hong Kong) Limited
		Fullerton Fund Management Company Ltd
		Ghisallo Master Fund LP
		Jane Street Financial Limited
		JPMorgan Asset Management (UK) Limited (for and on behalf of its clients)
		Kasikorn Asset Management Co., Ltd.
		Lion Global Investors Limited
		Nikko Asset Management Asia Limited
		Principal Global Investors (Singapore) Limited
		Resolution Capital Limited
		Schonfeld IR Master Fund Pte. Ltd. and Schonfeld Global Master Fund LP
		Stichting Depositary APG Tactical Real Estate Pool, As Depositary Of APG Tactical Real Estate Pool
		The Segantii Asia-Pacific Equity MultiStrategy Fund
		TMB Asset Management Company Limited
		Value Partners Hong Kong Limited
	





Digital Core REIT – Pure-Play Data Centre S-REIT – Debuts on SGX 

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<li>
Aztech Global listed on the SGX Mainboard today. The technology unit of Aztech Group (previously listed on SGX), provides one-stop design and manufacturing services. With core strengths in R&amp;D, design, engineering and manufacturing, its key products include IoT Devices, Data-communication and LED lighting. 
	 </li>
	<li>
The Group is also a key technology enabler for its customers which include multi-national blue chip corporations that are market leaders ranging from IoT/Smart Home devices and LED lighting markets, to security cameras and wearable sensors in North America, Europe and Asia (Taiwan, Japan, South Korea). 
	 </li>
	<li>The Group does not have a fixed dividend policy, however, its Directors intend to recommend dividends of at least 30% of its net profit after tax (excluding exceptional items) generated in FY21 and FY22. </li>
</ul>
 

Aztech Global was formed in 2009 as a holding company for Aztech Group’s electronics and LED manufacturing businesses and has listed on SGX today with a market value of over $1 billion, based on the opening price of S$1.37. Aztech Global has three key product segments – i) Internet of Things (IoT) Devices and Data-communication products, ii) LED lighting products, and iii) Other electrical products. It has over 290 customers worldwide and its products are sold in over 40 countries through multiple channels.
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2021-03/Capture%201_4.PNG' alt='Key Product Segments' />
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 <div class='content-caption'>Key Product Segments</div>
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Based on its IPO Prospectus, the Group believes that drivers for its business include:

<ul>
<li>
Increasing demand for IoT Devices and Data-communication products – Global IoT industry consumer market is expected to grow at a CAGR of 23.4% to US$94.8 billion by 2023, while the non-consumer segment to grow at a CAGR of 20.2% to US$330.4 billion by 2023. Global data-communications and LED lighting are expected to grow to US$59.2 billion and US$80 billion by 2023 respectively</li>
	<li>
Positive outlook for the LED lighting industry – Global penetration rate of LED lighting estimated to reach 42.8% in 2023 from 25.3% in 2019.</li>
</ul>
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 <img src='https://api2.sgx.com/sites/default/files/2021-03/Capture%201_5.PNG' alt='Market size to IoT Devices' />
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 <div class='content-caption'>Market size to IoT Devices</div>
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Highlights of the IPO

1. Established track record and experienced management team in the electronics industry 

<ul>
<li>Led by experienced management team and helmed by founder and Executive Chairman and CEO, Mr. Michael Mun, who has over 30 years of experience in the electronics industry.</li>
	<li>Management team has in-depth product, industry and technical knowledge, coupled with strong management capabilities and business network, and instrumental in building the Group’s brand globally.</li>
</ul>
 

2. Strong core competencies of in-house R&amp;D and production engineering capabilities

<ul>
<li>According to Frost &amp; Sullivan, the Group’s strong core capabilities in design and manufacturing to value-add production processes is what differentiates Aztech Global from other pure-play contract manufacturers.</li>
	<li>Dedicated research and development (R&amp;D) team comprising 142 staff collectively equipped with expertise and experience in industrial design, mechanical engineering, electronics and electrical engineering and software and hardware design.</li>
	<li>Close engagement with customers in the early stages of product design and development and strong emphasis on the protection of customers’ intellectual property.</li>
</ul>
 

3. Strong manufacturing capabilities at diversified and highly integrated facilities in the PRC and Malaysia  

<ul>
<li>Aztech Global has operations in two countries – Malaysia and the PRC – to reduce logistics costs and ensure prompt flexible scheduling and just-in-time delivery.</li>
	<li>Production lines for LED lighting products, IoT products, data-communication products and other electronic products are housed in its manufacturing facility in Dongguan, Guangdong Province, the PRC in order to enjoy economies of scale as these products share similar manufacturing processes.</li>
	<li>The Group believes that its Dongguan facility, which is designed to be able to support both high-volume-low-mix and low-volume-high-mix production requirements, allows it to capture a wider customer base as compared to other manufacturers.</li>
</ul>
 

4. Key technology enabler to customers, including multi-national blue-chip corporations

<ul>
<li>Key customers include multi-national blue chip corporations that are market leaders ranging from IoT/Smart Home devices and LED lighting markets, to security cameras and wearable sensors.</li>
	<li>The Group has three major customers with account for 5.0% or more of its revenue.
	<ul>
<li>Customer A (accounts for 49.0% of FY19 revenue) is a major US e-commerce retailer – supplies smart security cameras for them.</li>
		<li>Customer B (28.4% of FY19 revenue) is a Hong Kong subsidiary of a leading Europe-based multinational lighting group – supplies LED lighting products for them.</li>
		<li>Customer C (8.9% of FY19 revenue) is a German company specializing in smart home technology – supplies HomePlug for them.</li>
	</ul>
</li>
</ul>
 

5. Robust product portfolio catered to fast-growing industries and globally diversified sales channels

<ul>
<li>As at 15 February 2021, the Group had an outstanding order book of c.S$307.9 million, comprising c.S$292.4 million for IoT Devices and Data-communication products segment and c.S$15.5 million for LED lighting products segment, all expected to be delivered or completed within FY2021.</li>
</ul>
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 <img src='https://api2.sgx.com/sites/default/files/2021-03/Capture%201_6.PNG' alt='Over 30 years' />
 </figure>
 <div class='content-caption'>Over 30 years</div>
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Business Strategies and Future Plans

<ul>
<li>Expansion of manufacturing facilities such as sites outside of the PRC to double existing production capacity</li>
	<li>Expansion of ODM/JDM business to capitalize on opportunities in the growing IoT market</li>
	<li>Enhance of R&amp;D capabilities through staff recruitment and strategic collaborations</li>
	<li>Increase sales and marketing channels for overseas market expansion such as America, Europe, the PRC and Japan</li>
	<li>Diversification of business through investments, M&amp;As, joint ventures and/or strategic collaborations</li>
</ul>
 

Key Risks (See Page 38 of the IPO Prospectus for more risk factors)

<ul>
<li>Subject to potential adverse consequences due to the Group’s lack of valid certificates, permits and other approvals in respect of the Dongguan Land and the buildings on it.</li>
	<li>Business operations may be materially and adversely affected if the Group fails to comply with laws, regulations and conditions stipulated in any licences, permits, registrations or approvals, and/or are unable to obtain, maintain and/or renew the required licences, permits, registrations and approvals.</li>
	<li>Exposed to concentration risk of reliance on its major customers, and may be adversely affected by any disruption or termination of its business relationships with its major customers or fluctuations in their demand for its products.</li>
	<li>Plan their production based on customers’ projections of the demand for their products which may not materialize into orders.</li>
</ul>
 

Financials &amp; Valuation

<ul>
<li>Based on its consolidated statements of comprehensive income, revenue for FY2019 was at S$428.8 million and audited revenue for 9M2020 was S$262.2 million. Profit after tax was S$47.2 million in FY2019 while 9M2020 (audited) was S$30.5 million.</li>
	<li>According to the IPO prospectus, Aztech Global’s earnings per share (EPS) is at 7.47 Singapore cents for FY2019 based on the audited consolidated statement of comprehensive income and the company’s share capital immediately before the issuance of New Cornerstone Shares, assuming the Service Agreements had been effect since 1 January 2019. Based on this and the Invitation Price of S$1.28, the price-to-earnings (P/E) ratio is 17.1x for FY2019.</li>
	<li>The Group does not have a fixed dividend policy, however, its Directors intend to recommend dividends of at least 30% of its net profit after tax (excluding exceptional items) generated in FY2021 and FY2022.</li>
</ul>
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2021-03/Capture%201_7.PNG' alt='Revenue' />
 </figure>
 <div class='content-caption'>Revenue</div>
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Additional Information from Prospectus <a href="https://links.sgx.com/FileOpen/Aztech%20Global%20Prospectus.ashx?App=IPO&amp;FileID=6272">(click here)</a>

 Company Background 
Aztech Global was formed in 2009 as a holding company for Aztech Group’s electronics and LED manufacturing businesses. Aztech Group was founded in 1986 by Executive Chairman and CEO, Mr. Michael Mun, who co-founded the business to undertake the design, manufacture and distribution of personal computers. The Group’s product range has since expanded to include electronic products ranging from sound cards, and DECT phones to its current focus of IoT Devices, Data-communication products and LED lighting products. Aztech Group was listed on SESDAQ and subsequently delisted from the SGX in 2017. 
The Group commenced a rebranding exercise in December 2019 which the “Aztech” brand is now used for the Group’s business-to-business markets providing OEM, ODM, JDM, and CMS services while the “Kyla” brand is used in the Group’s business-to-consumer markets selling products under its own name. 
 

IPO details

<ul>
<li>Invitation price at S$1.28 per Offer Share</li>
	<li>68.12 million Offer Shares comprising:
	<ul>
<li>64.62 million Placement Shares by way of Placement</li>
		<li>3.5 million Public Offer Shares</li>
	</ul>
</li>
	<li>Estimated IPO market capitalisation at S$990.4 million</li>
	<li>Use of gross proceeds from the issuance of the New Cornerstone Shares (S$198.4 million):
	<ul>
<li>S$50.0 million – Expansion and enhancement of manufacturing facilities</li>
		<li>S$50.0 million – Expansion of business through investments, M&amp;A, joint ventures and/or strategic collaboration</li>
		<li>S$15.0 million – Enhancement of R&amp;D capabilities</li>
		<li>S$10.0 million – Increase sales and marketing channels for overseas markets expansion</li>
		<li>S$5.0 million – Expansion of ODM/JDM business to capitalize on opportunities in the growing IoT market</li>
		<li>S$58.6 million – Working capital</li>
		<li>S$9.8 million – Listings expenses 
		 </li>
	</ul>
</li>
</ul>
Cornerstone Investors

At the same time as but separate from the Invitation, each of the Cornerstone Investors has entered into separate Cornerstone Agreements with our Company and/or Vendor to subscribe for and/or purchase an aggregate of 163,880,000 Cornerstone Shares (approx. 21.2% of the total number of issued shares) at the Invitation Price, conditional upon the, among others, the Management and Underwriting Agreement having been entered into and not having been terminated pursuant to its terms on or prior to the Listing Date. The Cornerstone Investors are:

<ul>
<li>Affin Hwang Asset Management Berhad</li>
	<li>AIA Investment Management Private Limited and AIA Bhd.</li>
	<li>DBS Bank Ltd.</li>
	<li>Eastspring Investments (Singapore) Limited</li>
	<li>Employees Provident Fund Board</li>
	<li>FIL Investment Management (Hong Kong) Limited</li>
	<li>Hong Leong Assurance Berhad</li>
	<li>HSBC Global Asset Management (Hong Kong) Ltd</li>
	<li>ICH Capital Pte Ltd</li>
	<li>JPMorgan Asset Management (Singapore) Limited</li>
	<li>Lion Global Investors Limited</li>
	<li>Fiera Capital (Magna New Frontiers Fund, OAKS Emerging and Frontier Opportunities Fund, and OAKS Smaller Emerging Market Opportunities Fund)</li>
	<li>Matthews International Capital Management, LLC</li>
	<li>New Silk Road Investment Pte. Ltd.</li>
	<li>Tokio Marine Life Insurance Singapore Ltd</li>
	<li>UOB Kay Hian Private Limited (on behalf of certain corporate clients)</li>
	<li>Value Partners Hong Kong Limited</li>
</ul>
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Aztech Global listed on the SGX Mainboard today. The technology unit of Aztech Group (previously listed on SGX), provides one-stop design and manufacturing services. With core strengths in R&amp;D, design, engineering and manufacturing, its key products include IoT Devices, Data-communication and LED lighting. 
	 
	
The Group is also a key technology enabler for its customers which include multi-national blue chip corporations that are market leaders ranging from IoT/Smart Home devices and LED lighting markets, to security cameras and wearable sensors in North America, Europe and Asia (Taiwan, Japan, South Korea). 
	 
	The Group does not have a fixed dividend policy, however, its Directors intend to recommend dividends of at least 30% of its net profit after tax (excluding exceptional items) generated in FY21 and FY22. 

 

Aztech Global was formed in 2009 as a holding company for Aztech Group’s electronics and LED manufacturing businesses and has listed on SGX today with a market value of over $1 billion, based on the opening price of S$1.37. Aztech Global has three key product segments – i) Internet of Things (IoT) Devices and Data-communication products, ii) LED lighting products, and iii) Other electrical products. It has over 290 customers worldwide and its products are sold in over 40 countries through multiple channels.



      
    
    Key Product Segments


Based on its IPO Prospectus, the Group believes that drivers for its business include:



Increasing demand for IoT Devices and Data-communication products – Global IoT industry consumer market is expected to grow at a CAGR of 23.4% to US$94.8 billion by 2023, while the non-consumer segment to grow at a CAGR of 20.2% to US$330.4 billion by 2023. Global data-communications and LED lighting are expected to grow to US$59.2 billion and US$80 billion by 2023 respectively
	
Positive outlook for the LED lighting industry – Global penetration rate of LED lighting estimated to reach 42.8% in 2023 from 25.3% in 2019.




      
    
    Market size to IoT Devices


Highlights of the IPO

1. Established track record and experienced management team in the electronics industry 


Led by experienced management team and helmed by founder and Executive Chairman and CEO, Mr. Michael Mun, who has over 30 years of experience in the electronics industry.
	Management team has in-depth product, industry and technical knowledge, coupled with strong management capabilities and business network, and instrumental in building the Group’s brand globally.

 

2. Strong core competencies of in-house R&amp;D and production engineering capabilities


According to Frost &amp; Sullivan, the Group’s strong core capabilities in design and manufacturing to value-add production processes is what differentiates Aztech Global from other pure-play contract manufacturers.
	Dedicated research and development (R&amp;D) team comprising 142 staff collectively equipped with expertise and experience in industrial design, mechanical engineering, electronics and electrical engineering and software and hardware design.
	Close engagement with customers in the early stages of product design and development and strong emphasis on the protection of customers’ intellectual property.

 

3. Strong manufacturing capabilities at diversified and highly integrated facilities in the PRC and Malaysia  


Aztech Global has operations in two countries – Malaysia and the PRC – to reduce logistics costs and ensure prompt flexible scheduling and just-in-time delivery.
	Production lines for LED lighting products, IoT products, data-communication products and other electronic products are housed in its manufacturing facility in Dongguan, Guangdong Province, the PRC in order to enjoy economies of scale as these products share similar manufacturing processes.
	The Group believes that its Dongguan facility, which is designed to be able to support both high-volume-low-mix and low-volume-high-mix production requirements, allows it to capture a wider customer base as compared to other manufacturers.

 

4. Key technology enabler to customers, including multi-national blue-chip corporations


Key customers include multi-national blue chip corporations that are market leaders ranging from IoT/Smart Home devices and LED lighting markets, to security cameras and wearable sensors.
	The Group has three major customers with account for 5.0% or more of its revenue.
	
Customer A (accounts for 49.0% of FY19 revenue) is a major US e-commerce retailer – supplies smart security cameras for them.
		Customer B (28.4% of FY19 revenue) is a Hong Kong subsidiary of a leading Europe-based multinational lighting group – supplies LED lighting products for them.
		Customer C (8.9% of FY19 revenue) is a German company specializing in smart home technology – supplies HomePlug for them.
	


 

5. Robust product portfolio catered to fast-growing industries and globally diversified sales channels


As at 15 February 2021, the Group had an outstanding order book of c.S$307.9 million, comprising c.S$292.4 million for IoT Devices and Data-communication products segment and c.S$15.5 million for LED lighting products segment, all expected to be delivered or completed within FY2021.




      
    
    Over 30 years


Business Strategies and Future Plans


Expansion of manufacturing facilities such as sites outside of the PRC to double existing production capacity
	Expansion of ODM/JDM business to capitalize on opportunities in the growing IoT market
	Enhance of R&amp;D capabilities through staff recruitment and strategic collaborations
	Increase sales and marketing channels for overseas market expansion such as America, Europe, the PRC and Japan
	Diversification of business through investments, M&amp;As, joint ventures and/or strategic collaborations

 

Key Risks (See Page 38 of the IPO Prospectus for more risk factors)


Subject to potential adverse consequences due to the Group’s lack of valid certificates, permits and other approvals in respect of the Dongguan Land and the buildings on it.
	Business operations may be materially and adversely affected if the Group fails to comply with laws, regulations and conditions stipulated in any licences, permits, registrations or approvals, and/or are unable to obtain, maintain and/or renew the required licences, permits, registrations and approvals.
	Exposed to concentration risk of reliance on its major customers, and may be adversely affected by any disruption or termination of its business relationships with its major customers or fluctuations in their demand for its products.
	Plan their production based on customers’ projections of the demand for their products which may not materialize into orders.

 

Financials &amp; Valuation


Based on its consolidated statements of comprehensive income, revenue for FY2019 was at S$428.8 million and audited revenue for 9M2020 was S$262.2 million. Profit after tax was S$47.2 million in FY2019 while 9M2020 (audited) was S$30.5 million.
	According to the IPO prospectus, Aztech Global’s earnings per share (EPS) is at 7.47 Singapore cents for FY2019 based on the audited consolidated statement of comprehensive income and the company’s share capital immediately before the issuance of New Cornerstone Shares, assuming the Service Agreements had been effect since 1 January 2019. Based on this and the Invitation Price of S$1.28, the price-to-earnings (P/E) ratio is 17.1x for FY2019.
	The Group does not have a fixed dividend policy, however, its Directors intend to recommend dividends of at least 30% of its net profit after tax (excluding exceptional items) generated in FY2021 and FY2022.




      
    
    Revenue


Additional Information from Prospectus (click here)

 Company Background  
Aztech Global was formed in 2009 as a holding company for Aztech Group’s electronics and LED manufacturing businesses. Aztech Group was founded in 1986 by Executive Chairman and CEO, Mr. Michael Mun, who co-founded the business to undertake the design, manufacture and distribution of personal computers. The Group’s product range has since expanded to include electronic products ranging from sound cards, and DECT phones to its current focus of IoT Devices, Data-communication products and LED lighting products. Aztech Group was listed on SESDAQ and subsequently delisted from the SGX in 2017.  
The Group commenced a rebranding exercise in December 2019 which the “Aztech” brand is now used for the Group’s business-to-business markets providing OEM, ODM, JDM, and CMS services while the “Kyla” brand is used in the Group’s business-to-consumer markets selling products under its own name. 
 

IPO details


Invitation price at S$1.28 per Offer Share
	68.12 million Offer Shares comprising:
	
64.62 million Placement Shares by way of Placement
		3.5 million Public Offer Shares
	

	Estimated IPO market capitalisation at S$990.4 million
	Use of gross proceeds from the issuance of the New Cornerstone Shares (S$198.4 million):
	
S$50.0 million – Expansion and enhancement of manufacturing facilities
		S$50.0 million – Expansion of business through investments, M&amp;A, joint ventures and/or strategic collaboration
		S$15.0 million – Enhancement of R&amp;D capabilities
		S$10.0 million – Increase sales and marketing channels for overseas markets expansion
		S$5.0 million – Expansion of ODM/JDM business to capitalize on opportunities in the growing IoT market
		S$58.6 million – Working capital
		S$9.8 million – Listings expenses 
		 
	


Cornerstone Investors

At the same time as but separate from the Invitation, each of the Cornerstone Investors has entered into separate Cornerstone Agreements with our Company and/or Vendor to subscribe for and/or purchase an aggregate of 163,880,000 Cornerstone Shares (approx. 21.2% of the total number of issued shares) at the Invitation Price, conditional upon the, among others, the Management and Underwriting Agreement having been entered into and not having been terminated pursuant to its terms on or prior to the Listing Date. The Cornerstone Investors are:


Affin Hwang Asset Management Berhad
	AIA Investment Management Private Limited and AIA Bhd.
	DBS Bank Ltd.
	Eastspring Investments (Singapore) Limited
	Employees Provident Fund Board
	FIL Investment Management (Hong Kong) Limited
	Hong Leong Assurance Berhad
	HSBC Global Asset Management (Hong Kong) Ltd
	ICH Capital Pte Ltd
	JPMorgan Asset Management (Singapore) Limited
	Lion Global Investors Limited
	Fiera Capital (Magna New Frontiers Fund, OAKS Emerging and Frontier Opportunities Fund, and OAKS Smaller Emerging Market Opportunities Fund)
	Matthews International Capital Management, LLC
	New Silk Road Investment Pte. Ltd.
	Tokio Marine Life Insurance Singapore Ltd
	UOB Kay Hian Private Limited (on behalf of certain corporate clients)
	Value Partners Hong Kong Limited




Aztech Global – Delighting People with Smarter Solutions – Debuts on SGX

Hong Kong

Value Partners Group Limited is an independent, value oriented asset management group with a focus on China and the Asia-Pacific region. The Company's investor base include institutions, corporations, statutory authorities, university endowment funds, charitable foundations, high net worth individuals, and retail investors.

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Value Partners (806 HK)

Digital Core REIT – Pure-Play Data Centre S-REIT – Debuts on SGX

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Aztech Global – Delighting People with Smarter Solutions – Debuts on SGX

Aztech Global listed on the SGX Mainboard today. The technology unit of Aztech Group (previously listed on SGX), provides one-stop design and...

Singapore Exchange Ltd (SGX)

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