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Keppel DC REIT approaches 10-month low; shooting star appears on Enviro-Hub

The Edge Singapore
The Edge Singapore 6/11/2021 6:30 AM GMT+08  • 4 min read
Keppel DC REIT approaches 10-month low; shooting star appears on Enviro-Hub
Keppel DC REIT has languished, approaching a 10-month low. Enviro-hub formed a shooting star suggesting some selling pressure
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Keppel DC REIT (KDC REIT), very much the flavour of 2020, has been somewhat sidelined since April this year. It has also drifted down to a 10-month low, despite 1QFY2021 distributions per unit (DPU) rising by 1.4% y-o-y. Excluding capex reserves that have been set aside, DPU would have risen by 18.1% to 2.462 cents (KDC REIT distributes its DPU half yearly). DBS Bank, which is usually quite positive on REITs, has a hold rating on KDC REIT. Still, the latter’s DPU is likely to be lifted in 2HFY2021 by the completion of the Intellicentre 3 East Data Centre (in image), sited within the Macquarie Business Park precinct in Sydney, in 2Q2021.

But in April, KDC REIT and M1 signed a non-binding term sheet that may have spooked investors. The duo plan a special purpose vehicle (SPV) to own and operate M1’s current mobile as well as its fixed and fibre assets (network assets). M1 will establish the SPV, which will acquire the network assets from M1 for $580 million — which is equivalent to the net book value of the network assets as at end February. The SPV will be funded by external financing of $493 million, and KDC REIT will invest $87 million in debt securities and preference shares issued by the SPV. M1 will continue to retain 100% of the ordinary shares in the SPV. However, the board of the SPV will have equal representation from M1 and KDC REIT.

It is unclear from the announcement whether KDC REIT will have any voting rights as debt securities and preference shares do not carry voting rights. M1— which will own 100% of the ordinary shares in the SPV — could end up with all the voting rights. REITs are meant to be passive vehicles. Hence, M1 appears to be in the driving seat as the April announcement says the SPV will enter into a 15-year Network Service Agreement with the telco. The SPV will also contract its network capacity to M1, who will undertake the operations and maintenance of the network assets.

Technically, KDC REIT’s unit price is hovering near a twice tested support level of $2.53 to $2.54. This needs to hold as a break below this level would indicate a downside objective. Unfortunately, the 50-, 100-, and 200-day moving averages are all falling. Prices would really need to rise above $2.66 at the declining 50-day moving average for the stock to gain strength.

Elsewhere, Enviro-Hub Holdings announced on June 7 that its associate company Pastel Gloves in Malaysia received a 510 (k) regulatory clearance from the US Food and Drug Administration (FDA) for its nitrile medical grade examination gloves on May 15. On May 21, Enviro-Hub said it would like to acquire the remaining 75% of Pastel Gloves it does not not own. Technically, the candlestick chart indicates the formation of a shooting star on June 8. This comprises a long shadow above a small body. Prices opened at 9.5 cents and closed at 9.3 cents forming a small black body. But during the session, the stock rose to a high of 10.9 cents — which was clearly not sustainable. On June 9, prices opened at 9.3 cents and closed at 9.5 cents, forming a small white body, which is not enough to negate the shooting star. In all likelihood, prices may move sideways in the form of a doji but the huge volume that accompanied the shooting star — more likely than not points to net selling rather than anything else. Traders should note that Enviro-Hub has traditionally been somewhat illiquid, and punters may find it more difficult exiting the stock than entering a position in the stock.

The Straits Times Index (STI) fluctuated by less than one point during the past five trading sessions, with the STI ending at 3,158 on June 9, as volume fell to a one-month low. During the five sessions however, the index rose to a high of 3,178 on June 7. The average directional movement index (ADX) continues to fall, suggesting that the STI remains range bound. On a positive note, the index has managed to stay above 3,150, establishing this as an increasingly relevant support level. As the STI establishes a trading range, 3,178 could be the benchmark to breach for an uptrend to develop.

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