[Overseas Stocks Spotlight] "Equinix, Leader in the Data Center Industry"

[Asia Economy Reporter Eunmo Koo] Analysis suggests that Equinix (EQIX US), the world's largest data center REIT, can continue its high growth through interconnection services.

Equinix, the world's largest data center REIT, transitioned from a regular company to a REIT in 2015 to expand more data centers and become the global number one platform. Equinix's unique strength, Interconnection, is expected to grow by 6% annually and has recorded more interconnection revenue than 10 competitors for 13 consecutive quarters. Currently, the number of interconnection circuits reaches 341,000.

Recently, Equinix executed a $1.6 billion capital increase to acquire BCE, a Canadian telecommunications company. This acquisition made Equinix the number one data center operator in Canada and solidified its top position in North America. Such mergers and acquisitions (M&A) and asset acquisitions, representing inorganic growth, have become more active since the transition to a REIT in 2015.

Equinix is expected to continue high growth through its unique interconnection service, the "Eco system." On the 5th, researcher Kyungja Lee of Samsung Securities stated in a report, "Equinix connects global cloud, network services, and data centers through interconnection services like the Equinix Cloud Exchange Fabric (ECX Fabric)," adding, "More than 9,800 corporate customers connected to data centers via ECX Fabric can connect with these companies."

Additionally, in South Korea, companies such as KT, LG Uplus, and Samsung SDS use Equinix's domestic data centers, allowing enterprises to pursue overseas expansion by participating in Equinix's ecosystem and interconnecting with global partners. The researcher explained, "This ultimately leads to a strong customer 'lock-in' effect once a company becomes an Equinix customer, supported by a competitive WALE period of 18 years," noting, "This is much longer compared to the competitor Digital Realty's WALE of 5.1 years."

Dividend capacity is also considered sufficient. The researcher analyzed, "The dividend payout ratio relative to adjusted funds from operations (AFFO) per share is only 43%, but this is because it is currently the period requiring the most investment," and added, "It is judged that there is sufficient dividend capacity to maintain the current dividend yield."

Equinix is also undertaking 45 expansion and new construction projects. Thirteen of these are new expansions planned in Amsterdam, Silicon Valley, and other locations, while 32 projects are under new development across 16 countries. The researcher predicted, "Dividend capacity can be increased once these large-scale investments are somewhat completed," and "Even if profit growth slows, ultimately high dividend growth can be realized."

Reduction in IT system spending is identified as a risk. In the short term, more companies may adjust their investment timing due to difficulties caused by COVID-19. IT research firm Gartner forecasts that global IT investment will decrease by 8% year-on-year to $3.45 trillion this year, with data center system investment dropping 9.7% to $191.1 billion.

However, the researcher viewed, "This is one of the pessimistic opinions, and the contactless era accelerated by COVID-19 is more likely to increase the necessity of data centers." Data center operators are focusing on various promotional activities for sales, such as virtual tours of data centers.