Keppel Infrastructure Trust (KIT SP) - UOB Kay Hian 2018-04-18: 1Q18 Results In-Line, Acquisitions Remain Far On The Horizon

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KEPPEL INFRA TRUST WEF 2015 A7RU.SI

Keppel Infrastructure Trust (KIT SP) - 1Q18: Results In-Line, Acquisitions Remain Far On The Horizon

RESULTS 

1Q18 distributable cash flow of S$36.2m, broadly in-line. 

• This made up 24% of our full-year estimate, broadly in line. 
• The y-o-y improvement was largely attributed to higher cash flow from City Gas and DC One. An expected step-up in gas tariffs lifted City Gas cash flow by 15% y-o-y. DC One’s y-o-y cash flow improvement (also up 17.6% q-o-q) was attributed to a step-up in core rent. 
• The slight improvement in O&M cost, relative to revenue, for City Gas and Basslink, was remarked to be due to timing issues.

DPU of 0.93 S cents in-line. 

• DPU was stable, and unchanged from previous quarters’. Ex-date is 20 Apr 18 with distribution payment on 18 May 18.

Basslink dispute still on-going, potential asset sale likely to be delayed. 

• Basslink continues to be in a dispute with Hydro Tasmania over the outage in Dec 15. Should the dispute enter into arbitration, we expect it to be protracted and impact any potential sales discussion. Until the dispute is settled, we see slim chances for Basslink to be sold off in the near term.

Still no acquisitions in sight; asset injection from sponsor unlikely in the short term.

• The infrastructure asset market remains challenging, with KIT facing stiff competition in its bids for good projects. While current asset yields are lower than the required rate of return for KIT, acquisitions could be structured to provide the required return. 
• Asset injection from sponsor Keppel Infrastructure is unlikely in the short term owing to the sole viable asset Marina East Desalination Plant being completed only in 2020.

EARNINGS REVISION 

Tweak cash flow estimates. 

• We tweak our corporate expense assumptions and lower our expected distributable cash flow by 3-4% across 2018-20 to S$144.4m, S$144.5m and S$145.8m respectively.

VALUATION 

Maintain BUY; target price tweaked to S$0.58. 

• Maintain BUY on Keppel Infrastructure Trust (KIT) with a reduced target price of S$0.58. 
• Keppel Infrastructure Trust (KIT)'s current share price presents an attractive forward yield of 7%. 
• KIT is a stable yield asset, with potential upside from share catalysts such as the divestment of Basslink or acquisitions that are DPU-accretive.

Foo ZhiWei UOB Kay Hian | http://research.uobkayhian.com/ 2018-04-18

SGX Stock Analyst Report BUY Maintain BUY 0.580 Down 0.610