Keppel Infrastructure Trust - DBS Research 2016-07-19: Stable DPU

Keppel Infrastructure Trust - DBS Research 2016-07-19: Stable DPU KEPPEL INFRA TRUST A7RU.SI 

Keppel Infrastructure Trust - Stable DPU

  • DPU of 0.93Scts in line with estimates.
  • Basslink asset is back online; negotiations with insurer underway.
  • Management can now focus on delivering on acquisitions.

Distribution of 0.93Scts in line. 

  • Keppel Infrastructure Trust (KIT) declared DPU of 0.93Scts for 2QFY16, in line with our full year estimate of 3.73Scts. 
  • Group revenue was up 5% q- o-q to S$137.4m and net profit came in at US$16.6m, boosted by one-off insurance proceeds related to the Basslink outage. 
  • The Trust’s newest asset, Data Centre One, was completed in April 2016 and contributed to positive income on the JV/ associates line in 2Q16.

No concerns on cashflow front. 

  • Distributable cashflows – the key number for KIT – came in at S$38.0m for 2Q16, and 1H16 distributable cash flows of S$78.7m now accounts for 52% of our full-year estimate. 
  • Despite lower revenues at City Gas owing to a cut in tariffs, City Gas’ cash earnings were relatively stable at S$12.1m, though it tends to swing from quarter to quarter as tariff adjustments lag underlying fuel cost movements. 
  • Cashflows from other assets including KMC power plant remained stable. 
  • Given that 1H16 distributable cashflows comfortably met our estimates, we are confident in the Trust’s ability to meet our FY16/17 distribution targets.

Basslink cable finally repaired; insurance negotiations underway. 

  • To recap, the Basslink interconnector in Australia had suffered an undersea cable fault, and as a result, availability had been affected since 20th December 2015. Poor weather and the complex nature of the undersea fault had complicated repair efforts, but the fault area was finally identified and the asset was restored on 13th June 2016. 
  • Basslink believes this is a force majuere event, and the insurer has confirmed that the physical loss and damage to the cable as well as loss of business arising from the event are insurable, subject to relevant terms of the policy. 
  • Basslink is currently working with the insurer on claims under the policy, and is also in discussions with offtaker Hydro Tasmania and the lenders on matters related to the outage. 
  • While we believe insurance proceeds will help soften the impact, at this point we cannot rule out any asset impairment related to Basslink and consequent impact on borrowings. 
  • As asset impairment is an annual exercise, we will probably have more clarity towards the end of the year.

DPU outlook remains steady. 

  • As highlighted earlier, the Basslink outage will not have an impact on KIT’s distributions as Basslink had not been contributing to distributable cashflows for some time and is not expected to in the near future either. 
  • Balance sheet issues at Basslink, if any in future, should not affect distributions either as borrowings at Basslink level are non-recourse to the Trust. 
  • The Trust's other assets meanwhile continue to churn out consistent cashflows and current yield of 7.3% remains attractive, in our view. 
  • Maintain BUY.
  • Price Target : S$0.56

Suvro SARKAR DBS Vickers | 2016-07-19
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.56 Same 0.56