Daily Japan: Khi (7012) Given Expected Recovery in Profits, Shares Are Now Too Cheap. and more

In this briefing:

1. Khi (7012) Given Expected Recovery in Profits, Shares Are Now Too Cheap.
2. Mapletree Industrial Trust Deal Underscores Data Centres’ Impact on Global Industrial Real Estate

1. Khi (7012) Given Expected Recovery in Profits, Shares Are Now Too Cheap.

The shares have underperformed TOPIX by 25% over the last 12 months and in terms of book, see chart below, are trading at near 5 year lows. Earnings for 3/19 were revised down after 1Q (operating profit from Y75bn to Y66bn due to write-off in the rolling stock division). The current forecast in our view is achievable and next year, in the absence of further write-off and growth in other parts of the business, we would expect operating profits to recover to the Y80bn level. This is a big conglomerate with many moving parts, some good and some not so good, but there is a price for everything and given where the shares are now, and where we think earnings are going, we are happy to buy here with the company trading at 0.9x book and the shares yielding just under 3%.

2. Mapletree Industrial Trust Deal Underscores Data Centres’ Impact on Global Industrial Real Estate

• While the amount of real estate needed by data centres is small in comparison with the volumes required for e-commerce, we are seeing that data centres are also impacting the market for industrial real estate in locations around the world. 
• Cloud and mobile computing, plus the Internet of Things are driving demand in the data center industry. According to Cushman & Wakefield, revenue growth at multi-tenant data centres will be 12% to 14% each year for the next two to five years.
• The data centres industry is having, and is positioned to continue to have, a material positive impact on pricing for industrial real estate in many markets around the world. 
• Real estate firm Cushman & Wakefield evaluated ten Asia Pacific markets for a range of factors. Singapore emerged as one of the two most attractive Asia Pacific locations for data centres. Over the past five months, Singapore has seen more than its share of significant data centre announcements. Most recently, Mapletree Industrial Trust disclosed that it would lease one of its buildings to global data centre company Equinix for 25 years.