KEPPEL INFRA TRUST
A7RU.SI
Keppel Infrastructure Trust (KIT SP) - No impact on distributable cash flows from Basslink outage
- DPU of 0.93 Scts for 1QFY16 in line with estimates
- Data centre asset completed, will contribute to cash flows from 2Q16
- Basslink repair costs covered by insurance, should not have any effect on distributions
Distributions on track.
- Keppel Infrastructure Trust declared DPU of 0.93 Scts for 1QFY16, in line with our full-year estimate of 3.73 Scts.
- Group revenue however fell by 18% q-o-q to S$131.2m and net profit came in at breakeven levels compared to S$8.7m net profit in 4Q-2016. This was largely owing to loss of revenue from Basslink interconnector, which suffered an outage in December 2015 and is still undergoing repairs.
- The key number – distributable cash flows – remained unaffected by Basslink issues and came in at S$40.7m for 1QFY16, accounting for 26% of our full-year estimates.
- Despite lower revenues at City Gas owing to cut in tariffs, City Gas cash earnings remained robust at S$14.1m, owing to the low fuel price environment. Note that City Gas earnings tend to swing from quarter to quarter as tariff adjustment lags underlying fuel costs.
- Given that distributable cash flows comfortably meet our estimates, we retain sufficient confidence in the Trust’s ability to meet FY16/17 distribution targets.
Minor organic growth in the works.
- Boiler upgrade works at Senoto waste incineration plant continues on schedule, and will add 10% capacity, once completed, thus enhancing cash flows.
- Construction of 1-Net North Data Centre by JV company Data Centre One is also now complete and will contribute to cash flows from 2Q16. These are however, not expected to have a significant effect on distributable cash flows or DPUs in FY16/17.
Basslink still down, but repair costs covered by insurance.
- To recap, the Basslink interconnector had suffered an undersea cable fault owing to which availability has been affected since 20 December 2015. Poor weather and the complex nature of the undersea fault has complicated repair efforts, but the fault area has now been identified and the asset is expected to be restored by June, though further delays cannot be ruled out.
- While loss of revenue in the interim period will continue, management believes insurance proceeds will cover the entire repair expenses for this force majuere event, and does not expect any penalties from the regulator at this point.
- While we cannot rule out any impact on the carrying value of asset and consequent impact on borrowings, asset impairment is an annual exercise and we will probably have more clarity towards the end of the year.
DPU outlook remains steady.
- As highlighted earlier, no impact on KIT distributions from Basslink outage as Basslink has not been contributing to distributable cash flows for a while and was not expected to in the near future either.
- Other assets continue to churn out consistent cash flows and current yield of 7.4% remains attractive, in our view.
- Price Target : S$0.56 (11% upside). Maintain BUY.
Suvro SARKAR
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HO Pei Hwa
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http://www.dbsvickers.com/
2016-04-14
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SGX Stock
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0.56
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0.56
