OCBC Investment Research (OIR) analyst Ada Lim has maintained her “buy” call on Keppel Infrastructure Trust A7RU (KIT) while maintaining her fair value estimate of 51 cents.
Her report dated Nov 18 comes after KIT announced its proposed acquisition of a 50% equity interest in Keppel Marina East Desalination Plant (KMEDP) for an enterprise value of $323 million on the same day.
The acquisition is expected to be accretive to unitholders, says KIT. On a pro-forma basis, it would have increased funds from operations by 3.6% to $298.4 million and distribution per unit (DPU) by 0.4% to 3.87 cents in FY2024, while net asset value (NAV) remains flat at 15.8 cents, notes Lim.
There is an existing $315 million term loan facility attached to the asset, which has commenced amortisation. Upon its completion, KIT will extend a non-interest-bearing shareholders’ loan of $35 million to the holding company.
According to KIT, the acquisition will be funded by internal sources and existing debt facilities, nudging net gearing up by 0.4 percentage points (ppt) to 40.2% as at Dec 31, 2023, on a pro forma basis.
KIT’s management has shared that this is not a comfortable gearing level and they are not looking to conduct an equity fund raise as seen in previous acquisitions.
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In Lim’s view, KDEMP is a high-quality asset that generates long-term, stable cash flows and deepens KIT’s exposure to water treatment solutions in Singapore.
KDEMP has been extended a 25-year concession from Singapore’s Public Utilities Board (PUB) until 2045, translating to long-term, stable cash flows.
KIT’s assets under management (AUM) will grow from $9.7 billion, as of Sept 30, to around $9 billion upon completion of the proposed acquisition.
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KIT’s exposure to the environmental services segment will increase from 7% to 11% of its total portfolio, while the proportion of Singapore-based assets will rise from 19% to 22% as at Sept 30.
The proposed acquisition is considered an interested person transaction, and unitholders’ approval will need to be sought at an extraordinary general meeting (EGM), expected to take place in Dec 2024.
Lim maintains her forecasts pending the completion of the transaction, which is expected to take place by 1Q2025.
As at 2.09pm, units in KIT are trading 0.50 cents higher or 1.12% up at 45 cents.
