OCBC Investment Research analyst Ada Lim has kept her “buy” call on Keppel Infrastructure Trust A7RU (KIT) after the REIT reported a distributable income of $50.9 million for the 1QFY2024 ended March 31, 29.1% lower y-o-y. The lower figure is attributed mainly to KIT’s distributable and storage segment.
KIT’s adjusted ebitda for the quarter, however, rose by 3.8% y-o-y to $130.7 million. Without the adjustments of acquisition-related costs, unrealised exchange gains and performance fees, group ebitda stood at $118.8 million.
After adjusting for one-offs, KIT’s distributable income would have been 29% higher y-o-y at $66.8 million, notes Lim in her May 3 report.
However, KIT’s higher gearing and weighted average cost of debt have led the analyst to lower her distribution per unit (DPU) estimates for FY2024 and FY2025 by 1.3% and 0.6% respectively.
“Management shared that a 100 basis point change in interest rates would have around 2.5% impact to 1QFY2024 distributable income,” Lim notes.
Yet, there is “upside risk” to Lim’s revised figures since they haven’t factored in KIT’s proposed acquisition of Ventura Motors. KIT, on Feb 5, announced that it will be acquiring Ventura Motors for an enterprise value of A$600 million ($540 million). The company is the largest bus service business in Victoria, Australia. The acquisition is slated to be completed in the 2Q2024.
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“As we also increase our risk-free rate assumption from 2.75% to 3% to reflect a 'higher for longer' interest rate environment, our fair value estimate dips from 59.5 cents to 57 cents,” Lim explains.
“KIT’s share price may remain range-bound in the near term, in our view, until the overhang of its proposed equity fund raising exercise is lifted,” she adds.
Despite this, Lim still sees positive prospects for KIT, as many of its assets are backed by long-term concession agreements and over 90% of its portfolio is insulated against inflation done via cost pass-through mechanisms or strong price-setting capabilities.
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“This translates to stable, recurring cash flows that are relatively unaffected by the ebbs and flows of the business cycle,” says Lim.
To this end, she sees acquisitions remaining a “key growth driver” for KIT, with the REIT being “well supported” by an “experienced management team” and the ability to tap on the Keppel ecosystem.
“As such, we favour KIT as a defensive play in the face of heightened market volatility, with the secular tailwind of rising infrastructure spending providing further support,” she adds.
Units in KIT closed 0.5 cents higher or 1.10% up at 46 cents on May 10.
