There is something to be said about the way infrastructure assets are packaged for investors. The share price of Sembcorp Industries (SCI) U96 is at its highest level since its heydays during the go-go years of the offshore and marine boom.
In those days, its subsidiary, Sembcorp Marine (now Seatrium) was the second-largest jack-up rig builder in the world, after Keppel Corp. BN4 All this has changed.
Both SCI and Keppel have pivoted to renewables after divesting their offshore and marine assets and businesses. More than that, Keppel is re-styling itself as an investment manager of real estate and alternative assets such as digital infrastructure.
Part of Keppel’s asset-light business model is to nudge the asset-heavy part of the business which requires a high debt component further down, so to speak.
Local investors are familiar with the real estate investment manager (REIM) model. Both CapitaLand Investment and ESR Group, which is now the largest investment manager in Asia as defined by ANREV (Asian Association for Investors in Non-Listed Real Estate Vehicles), have versions of the asset-light model along with GLP Capital Partners.
ESR and CLI have articulated that they plan to dip their toes in alternative assets.
However, while SCI is at an eight-year high, Keppel Infrastructure Trust (KIT), a Keppel unit, is at its lowest level since the start of Covid in 2020.
Investors clearly prefer a corporate structure such as SCI that has maintained revenue growth and earnings growth.
While SCI’s spectacular earnings growth in FY2022 ended December 2022 may not be repeated this year, SCI should be able to report a steady net profit profile. Unlike Keppel, SCI carries a significant amount of debt, although gearing levels have fallen in recent years.
More interestingly, unlike KIT, SCI has revenue reserves. Hence, when SCI invests in a new project, it does not necessarily have to call upon its shareholders for funding.
The contrast between what investors prefer from their infrastructure stocks could not be more stark.
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In April, KIT raised $299.6 million in a combination of a private placement ($183 million) and the remainder from a preferential equity fundraising (EFR). The preferential EFR units were priced at 0.467 cents and the placement units at 0.477 cents.
Of the monies raised, $293.1 million is being used for partial repayment of bridge facilities and the remainder for fees and expenses. The bridge loan was for a stake in a German offshore wind farm and a Korean waste management platform.
Keppel’s plans for AUM of $100 billion in the very short term and $200 billion in the short term suggest that units such as KIT may have to take on more of the burden of these assets.
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Technically, it can be said that the rising momentum for SCI’s shares is slowing down. A doji-like formation on the candlestick chart implies a consolidation of the gains is imminent. However, the uptrend has not completely dissipated.
More interesting technically could be ST Engineering, whose share price is approaching a several times tested resistance at $3.73 to $3.74. A breakout could see its share price testing a one-year high of $4.11.
On the other hand, KIT has yet to build a base. And at the rate of its AUM growth, it may need to raise equity either from placements and/ or EFR in the next few years and this may mean that a base formation is elusive.
