Basslink troubles pose zero threat to Keppel Infrastructure Trust, says DBS
SINGAPORE (Jan 23): DBS Vickers Securities continues to rate Keppel Infrastructure Trust (KIT) at “buy” at an unchanged target price of 58 cents post the release of KIT’s 4Q18 results where DPU came in flat at 93 cents, in line with expectations.
The research house’s positive stance comes despite troubles at KIT’s Australian subsidiary Basslink, where the State of Tasmania is demanding over A$100 million worth of indemnification for losses incurred during Basslink’s outage in 2016.
In a Wednesday report, analyst Suvro Sarkar says zero value has been ascribed to Basslink in valuations for KIT, as he deems negative newsflow regarding Basslink as an “irritant at best” as it does not affect the trust’s fundamentals.
“While Basslink has referred the dispute to arbitration, even in the worst case scenario, KIT will not be liable to pay any damages as any claims against Basslink are ring-fenced at the Basslink Level. In any case, KIT does not depend on cash flows from Basslink for current distributions, and project loans are also non-recourse to KIT,” explains the analyst.
Sarkar continues to like KIT for its highly-predictable cash flows which are not exposed to economic cycles, as most of the trust’s assets derive revenue from availability-based payments, independent of actual offtake.
He is also positive on the trust’s impending acquisition of Ixom, which he believes will be yield-accretive without much impact to gearing ratios if a major portion is to be financed through an equity fund-raising route, which also represents a potential catalyst for KIT.
“KIT’s ability to raise equity funding for the Ixom deal through private placement and preferential offering at minimal discount to market price will be crucial,” says Sarkar.
As at 11:54am, units in KIT are trading flat at 52 cents or 43.1 times FY19F P/E.
