Why are we forgetting this stock? Let me remind you that Keppel Infrastructure Trust has been persistently focused on building a good reputation and profit share in the financial market. Its portfolio currently consists of eight assets, seven of which are based in Singapore, with the remaining asset located in Australia.
The birth of this company took place in 2015 through consolidation of 2 trustworthy industries – CitySpring Infrastructure Trust and the former Keppel Infrastructure Trust. Other than this it even has the stake of 51% in the gas-fired Keppel Merlimau Cogen power plant. This company (SGX: BN4) through its energy arm Keppel Energy, owns the rest of the plant.
PORTFOLIO OF THE COMPANY:
Talking about assets first comes the city gas is so it is 100% city gas trust and owns 51% interest in city OG gas. Has the authority as sole producer & retailer of piped town gas. It has over 78,000 customers showcasing good brand value.
Second is Senoko waste-to-energy plant so talking about its interest then it is 100% and the business is 2,310 tonnes/a day waste incineration concession. Mainly its customers are NEA and Singapore government agency. Its contractual terms are up to 2024.
Third, comes to Keppel Seghers Tuas WTE plant, its interest is 100% and business is 800 tonnes/a day waste incineration concession. Main customers are NEA and government agency of Singapore. Contractual terms are up to 2034.
SingSpring Desalination Plant is the next, its interest is 70% and main business is 136.380 m3 / a day seawater desalination concession. Customers comprise PUB and Singapore government agencies. Contractual terms are until 2025.
Next is Keppel Seghers Ulu Pandan NEWater Plant. It has 100% interest and business is 148.000 m3 NEWater desalination concessions. Customers are PUB and Singapore government agency. A contract exists till 2027.
Then it is Keppel Merlimau Cogen. It has an interest of 51%, and the main business is 13,000 MW combined cycle gas turbine power plant capacity tolling agreement. Keppel electric is the only customer. The contract exists till 2030 with an option of 10-year extension.
Next is data Centre one whose interest is 51% and business is of the data center. Customers are 1-Net and 100% subsidiary of MediaCorp, National broadcaster. The contract exists till 2036 with an option of extension for 8 years.
The last one is Basslink, it owes 100% interest in Basslink telecom. Main business is owner and operator of Basslink interconnector between states of Victoria and Tasmania. The main customer is Hydro Tasmania (owned by Tasmania State government). Contractual terms are till 2031 with an option of extension up to 15 years.
SOURCE: KEPPEL INFRASTRUCTURE TRUST ANNUAL REPORT 2016. FINANCIAL STATEMENTS:
In 2016, Keppel Infrastructure Trust’s revenue came in at S$581.1 million, an increase from the revenue of S$427.9 million for the nine-month period from 1 April 2015 to 31 December 2015 (9M2015). It was also observed that the company changed its financial year from 31 March to 31 December in 2k15.
Meanwhile, its net profit attributable to unitholders billowed from S$15.5 million to S$41.2 million. If an annual report is prepared on company’s revenue and net profit numbers 9M 2015, the trust would still have posted top-line and bottom-line growth in 2016.
A fall in distribution per unit is observed despite the growth of the company. It can be seen in the below picture:
Keppel Infrastructure Trust 2016 annual report
The total distribution for 9M2015 included a special distribution of S$59.9 million, which translates to 3.03 cents per unit. Leaving this data, total distribution and distribution per unit has increased in 2016 as compared to 2015.
By going through the financial results of 2017 which was released this year, the trust’s revenue grew 8.8% to S$632.5 million, and net profit credited to unitholders raised 15.6% to S$47.6 million. But, the total distribution was flat at S$143.5 million, leaving the DPU for 2017 unchanged at 3.72 Singapore cents.
As of year-end December 2017, the trust had expedited of 39.9%, up from 37.4% a year ago. This increment was seen as the trust drew on its loan facility to repay one of its auxiliaries.
A big advantage of owning infrastructure assets is that they are usually difficult to replicate due to their scale, the capital expenditure required, and the scarcity of land for construction.
Another benefit that the company provides is that assets are for long-term, stable and confessional. Assets currently have contractual agreements ranging from 8 to 30 years, some can even be extended to more than the contract period. When compared to the weighted average lease expiry of around four years for Singapore industrial REITs, Keppel Infrastructure Trust stands out.
Cash flows are even regular and recurring in nature. They are not correlated with GDP of the countries it operates in since its cash flows are backed by long-term contracts.
Stability of the company is depicted in the given graph:
Keppel Infrastructure Trust 2017 fourth-quarter earnings presentation
The growth of a company is achieved by focusing on 3 main sectors.
Firstly, organic growth. Due to continuous progress in this sector, a stable cash flow is achieved. Growth from the City Gas asset could come from higher penetration of gas water heaters in households. In fact, in the fourth quarter of 2017, City Gas’s customer base grew 3.8% year-on-year to 813,300, achieving an 800,000-customer-milestone.
Secondly, the trust has been given the authority of right to refusal on many assets which is owned by its sponsor, Keppel Corps.
These assets, which include the 49% stake in Keppel Merlimau Cogen that Keppel Infrastructure Trust does not own, are:
Third, the trust could acquire other infrastructure assets from the market.
In the year ended 31 March 2014, City Gas’s cash earnings were S$45.7 million; in 2017, its distributable cash flow was down to S$40.7 million. City Gas is an important asset for Keppel Infrastructure Trust. In 2016 and 2017, the asset accounted for 27% and 28%, respectively, of the trust’s total distributable cash flow.
As per 2017 reports the company’s major operational are like:
“[If an] outage lasts longer than anticipated and causes the availabilities of the plants to fall below their respective contracted levels, the plants will not be able to receive full payments due under their contracts. In addition, if the plants incur significant downtime due to extraordinary or extensive repairs, it could also lead to termination of contracts and/or liabilities or compensation arising under such agreements. Similarly, reduced availability due to the foregoing reasons would also affect production levels and revenues at City Gas.”
It clearly means that assets may not perform well which may lead to negative cash flows. Fortunately, Senoko Waste-to-Energy (WTE) Plant, Keppel Seghers Tuas WTE Plant, SingSpring Desalination Plant, Keppel Seghers Ulu Pandan NEWater Plant, and Keppel Merlimau Cogen all met their contractual obligations in 2017. It was business as usual at City Gas for the year too.
Another important aspect to focus is that company’s ability to extend a contract after it expires.
The earliest contract expiry for Keppel Infrastructure Trust (A7RU.SI) is in 2024, for the Senoko Waste-to-Energy plant. If the trust fails to renew contracts or get the appropriate replacement then vacuum may arise in cash flows. However, any abrogate could potentially be filled with new accretions.
One more thing to ponder is that, at the closing price of S$0.57 on 31 January 2018, Keppel Infrastructure Trust (A7RU.SI) had a price-to-book ratio of 1.91 and a distribution yield of 6.5%. The values are on the higher end as compared to its history. From 1 August 2015 (the earliest date from which we could get reliable valuation data) to 31 January 2018, the average price-to-book ratio was 1.54, while the average distribution yield stood at 7.1%.
Thus, that’s it for today. Increase number of profitable trades with MMFSolutions stocks tips.
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