SINGAPORE (Oct 17): DBS Group Research is maintaining its “buy” call on Keppel Infrastructure Trust (KIT) with an unchanged target price of 60 cents.
This comes after KIT on Monday posted 3Q17 results that were in line with DBS’s expectations.
The trust declared distribution per unit (DPU) of 0.93 cent for the 3Q ended September, unchanged from a year ago.
See: Keppel Infrastructure Trust reports flat 3Q DPU of 0.93 cent
While group revenue for 3Q17 was flat at $160.3 million, DBS analyst Suvro Sarkar says it is distributable cashflows that is the key number to watch for KIT.
KIT saw its distributable cashflows grow 4% year-on-year and 5% quarter-on-quarter to $40.5 million in 3Q, on the back of better performance at City Gas.
“City Gas’ cash generation tends to fluctuate from quarter to quarter owing to time lag between adjustments of gas tariffs and changes in underlying fuel costs, but smoothens out over time,” Sarkar says in a flash note on Tuesday.
“Cash flows from other key assets remained stable,” he adds. “And the trust’s newest asset, Data Centre One, contributed higher positive cash flows, as rental rates were renewed in line with existing agreements.”
Looking forward, Sarkar says KIT’s lower cost of equity funding could see the trust making a bid for acquisitions in the near future.
Excluding Basslink, KIT has a net debt-to-EBITDA ratio of around 5.0 times. These current gearing levels, the analyst opines, is not very aggressive for a utility asset owner.
While there is no statutory cap on gearing levels, Sarkar estimates that KIT could look at acquisition targets in the $1 billion enterprise value range, funded by a 2:1 debt-to-equity mix.
“We look forward to the trust kicking off its M&A ambitions in the next 6-12 months,” Sarkar says. “This should be a key catalyst for further re-rating.”
As at 3.06pm, units of Keppel Infrastructure Trust are trading flat at 55 cents or 39.9 times FY17 earnings with a dividend yield of 6.8%.
