Keppel Infra Trust

Keppel Infra Trust: CS initiated coverage with OUTPERFORM. With assets valued at more than $4b in the power generation, gas retailing, electricity transmission, water and wastewater treatment, and waste management segments, CS believes that Keppel Infrastructure Trust has visible cash flows, potential organic and inorganic growth opportunities, as well as an attractive dividend yield.

Created through the combination of Keppel Infrastructure Trust and Cityspring Infrastructure Trust, as well as the acquisition of a 51% stake in Keppel Merlimau Cogen, the enlarged Keppel Infrastructure Trust is the largest Singapore infrastructure focused business trust. Most of its assets are backed by long-term concession agreements of between 9.5 and 20 years with government-linked entities, providing good visibility to its near-term distributable cash flow.

Inorganic growth may come from acquisitions from Sponsor Keppel Infrastructure or third parties. Its 0.40x net gearing implies about $805m debt headroom assuming a 50% leverage. In addition, there could be potential upside to distributable cash flow from the review of Basslink Commercial Risk Sharing Agreement in 2Q16.

House TP of $0.57 is based on a DCF over the contract duration of assets, assuming cost of equity of 6.25%. The implied dividend yield of 6.5% would be in line with peers, as well as normalised spread over ten-year Singapore government bond yield.