SINGAPORE (April 12): Keppel Infrastructure Trust (KIT) generates cash flows that are more predictable than even most real estate investment trusts, making it resilient to economic cycles and a viable alternative to REITs, says Maybank Kim Eng Research.
“Most of KIT’s revenue streams have end-demand hedged moat features derived from capacity-availability based payments that are largely inflation adjusted and have cost pass-through tariff-setting mechanisms,” says Maybank analyst Neel Sinha in an unrated report on Wednesday.
KIT’s diversified portfolio of infrastructure assets in Singapore and Australia include City Gas, Keppel Merlimau Cogen power plant, waste-to-energy plant concessions Senoko WTE and Tuas WTE, water concessions Ulu Pandan NEWater and SingSpring Desalination, and commercial property DataCentre One.
“KIT’s strategy is to manage and invest in infrastructure assets that deliver long-term, regular and predictable cash flows that are shielded from economic cycles,” says Sinha. “Contracts are very long term in nature ranging from 15-25 years, typically with extension options with customers who are mostly governments or linked entities.”
Sinha believes that KIT’s portfolio holds organic growth potential. In addition, he notes that KIT’s balance sheet allows it to consider acquisitions up to $1.5 billion, which would represent a close to 36% increase in assets.
“KIT currently trades at a prospective FY17 dividend yield of 7.02%,” Sinha says. “In comparison, the Singapore REITs Index offers a prospective yield of 6.04%, while the Singapore Government 5 year and 10 year bonds offer 1.68% and 2.21% yields, respectively.”
Meanwhile, Sinha notes that KIT’s net profit is forecast to grow by 8.8% in FY17.
As at 12.47pm, units of Keppel Infrastructure Trust are trading flat at 53.5 cents.
