Keppel Infrastructure Trust - In infrastructure we trust

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

Defensive play on infrastructure spending
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 infrastructurefocused 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.

Growth drivers from recovery in Basslink and potential acquisitions
Inorganic growth may come from acquisitions from Sponsor Keppel Infrastructure or third parties. Its 0.40x net gearing implies about S$805 mn 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 (CRSM) in 2Q16.

Technical Analysis
Daily Chart
Attractive dividend yield of 7.2%
Our target price of S$0.57 is based on a discounted cash flow over the contract duration of assets, assuming cost of equity of 6.25%. The implied dividend yield of 6.5% at our target price would be in line with peers, as well as normalised spread over ten-year Singapore government bond yield. Key risks include lower-than-expected availability of assets and interest rate risks, amongst others. (Read Report)

Source : Credit Suisse Asia Pacific Equity Research

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