From UBS yesterday..." NEXTDC "Bearer of good news – another...

From UBS yesterday...
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NEXTDC "Bearer of good news – another large contract winfurther de-risks ..."

Recent contract winsfurther de-risk earnings growth

Another contractwin, which further reinforces the acceleration of the structuraltailwinds and highlights the strength of NXT's business model.

We note the ~4MWannounced today, combined with 12MW of recent wins in M1/M2 (16MW)underpin ~65% of incremental MW (~25MW) that UBSe forecast to beactivated over FY21-22E,

which in turn drives2yr EBITDA CAGR of +28% (and +49% EBIT). Furthermore, we highlightextension options of ~24MW in Sydney and ~33MW in Melbourne (total~57MW)

represent anadditional ~3.5 years of incremental MW activation if fullyexercised. Our view had been that the hyperscalers would wait untilthe majority of the original 16MW of

contracted S2capacity had been delivered, before awarding the next round ofcontracts. We forecast 12MW delivered by 30 Jun 2020 – but questionwhether NXT has

potentiallyaccelerated the delivery. We also highlight the 60MW of contracted /optioned MW in Melbourne is bigger than the current configuration ofM1 and M2 (~55MW),

in our viewsuggesting either: 1) the large M2 site has been remodelled foradditional capacity; or 2) NXT has pre-allocated some capacity intoM3.

Another ~4M contractwins bring NSW to >36MW + ~24MW extension options

NXT announced: 1)Contracted commitments at NSW DCs now increased by ~4MW to >36MW,bringing total contracted MWs plus expansion options (~24MW) close to60MW; 2)

Commitment tocompleting S2 fit-out to a total planned capacity of 30MW; and, 3)Revenue recognition for new contracted commitments expected tocommence during FY21.

Above contract winsfollow +12MW of recent VIC contract wins in March and May (>27MWcontracted + ~33MW options = ~60MW).

No changes toforecasts

UBSe alreadyfactored in ~36MW of contracted MW in S1/S2 for FY20E, therefore weleave forecasts unchanged, however we highlight the de-risking ofearnings.

Valuation: Buy, PT$10.70 unchanged

Our $8.72 DCFvaluation incorporates a 25-year finite life. We then apply a 40%replacement value for building / fit-out to derive our PT of $10.70.Our beta is kept at 0.85x,

given de-riskedearnings. NXT trades on an FY21E EV/EBITDA of 31.2x u/lying (h/line36.1x), a 52% premium vs the international peer median (20.5x)

despite offering 2xthe growth - 3yr (FY21-24E) EBITDA CAGR of 22% u/lying vs peer medianof 11%.

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