SINGAPORE (April 18): DBS Vickers Securities is maintaining its “buy” call on Keppel Infrastructure Trust (KIT) with an unchanged price target of 56 cents, after its trustee-manager on Monday declared a distribution per unit (DPU) of 0.93 cent for 1Q17, unchanged from a year ago.
In a Tuesday report, analyst Suvro Sarkar regards this as positive news of maintaining its record of steady DPU. Overall, he lauds KIT as an infrastructure platform with steady cash earnings with its newest asset, Data Centre One, having contributed to its positive cash flows in 1Q17.
(See also: Keppel Infrastructure Trust reports flat 1Q DPU of 0.93 cent)
This is despite the trust’s 1Q17 distributable cash flow of $34.2 million, which came in slightly lower than expected owing to time lag between tariff adjustments and costs at City Gas – a situation that Sarkar believes is “likely to smoothen out over time”.
Noting that KIT’s current gearing levels are “not very aggressive for a utility asset owner”, Sarkar estimates that the trust could borrow close to $500 million for acquisitions before it hits the 45% average level – and hence looks forward to the trust kicking off its merger and acquisition (M&A) ambitions in FY17.
“The right of first refusal (ROFR) option provided by sponsor Keppel Infrastructure to the trust offers easy targets in the near to medium term. But management is also continuously evaluating third party options in sectors like energy, telecoms, water and waste management,” explains Sarkar.
“While management focus in FY16 was largely on fighting fires at Basslink, an asset that does not contribute to distributions, we believe the saga should be coming to an end and delivering on acquisitions will be the key focus for management in FY17,” he concludes.
As at 12:41pm, units of KIT are trading 0.9% lower at 52 cents.
