WM asked 12 months ago
Hi Rusmin
As an investor, I just received a circular from Keppel Infra Trust on their proposed investment in a sub-sea cable vessel company (Global Marine Group). KIT's dividend yield is 8+% for me based on my entry price. The positives about this investment are that it is DPU accretive (+3.7% from $0.039 to $0.0405) and will apparently be funded from cash + debt (i.e. not diluting investor holdings by issuing new equity).
However, I am concerned with the following (1) net gearing will go from 40.4% to 41.5% (below MAS guideline but still above the blue chip S-REITs), (2) moving away from their core businesses in gas pipelines and energy/water/chemical plants; first they acquired a bus company in Australia and now a company whose main assets are ships - do they know how best to manage these different assets and their businesses?; (3) a shift towards shorter term contracts in GMG (55% of revenues are 5-7 year contracts, 25% of revenues are 2-4 year contracts, in contrast to the bulk of KIT's portfolio which has 10+ to 20+ year contracts. Even the Australian bus company has 8+2 year contracts with the local government).
I wonder if you have a point of view on this proposed investment - do the positives outweight the negatives?
2 Answers
Rusmin Ang Staff answered 12 months ago
Hi WM
I think KIT's main issue is their concession to operate the plant. So you might want to check their concession period for their plants? Bear in mind that Keppel Infra doesn't own these assets, they run these concessions on behalf of government and if they are not able to get renewal on their concession, the income is likely to fall. Unlike other infrastructure asset like road, pipes, cables, etc which can run for long tme... Power plants have to be decommissioned after their useful life period due to safety reason. I am not sure what's KIT exposure in this business because I haven't been following them for years.
Please login or Register to submit your answer