Public Announcement: This will be the last article covering Keppel Infrastructure Trust (“KIT”) till further notice. The reason is due to the continued distribution by the trust based on EBITDA which have led to a decrease in net asset value over the last few years. This means that the base value of their assets continues to be eroded, which may lead to issues in the future. Furthermore, there has been change in management direction with the acquisition of Ventura Motors, Australia’s largest bus service operator. This is something that is not aligned with me as I had preferred their original portfolio a few years ago.
On 4 February 2025, KIT announced their full year result for FY2024. There is sufficient distributable income to sustain their dividend payout. However, Net Asset Value (“NAV”) continues to decrease as distributable income is based on EBITDA. Investors will need to determine if there are any implications moving forward and assess their risk appetite accordingly.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Website: Financial Statements And Related Announcement::Full Yearly Results
Photo source: https://www.kepinfratrust.com/
Financial Highlights
Distributable Income
| Metrics | Current | Previous |
|---|---|---|
| Distributable Income | -35.7% | -60.1% |
| Rating | Unfavorable | Unfavorable |
Distributable income for the financial year ended 31 December 2024 decreased by 35.7% to SGD203 million. This is mainly due to the absence of the capital optimization. Management have disclosed that DPU would increase by 4.3% if adjusting for the one-offs. The distributable income, adjusted for one-offs is also sufficient to maintain the annual base distribution of approximately SGD200 million. However, it does not change the fact that these one-offs do affect KIT during this period. This metric is Unfavorable.
Gearing Ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 40.9% | 40.1% |
| Rating | Unfavorable | Unfavorable |
Gearing ratio increased to 40.9% as of 31 December 2024. Noted that there were no significant changes to total borrowings, therefore the increase was due to a decrease in total assets, likely due to depreciation charges.
Although KIT is not subjected to the same gearing requirements as REITs, the MAS rule is a safeguard to prevent the REIT from being overleveraged, which will help to protect investors capital. Using the REIT benchmarks, this metric is Unfavorable.
Perpetual Securities amounted to SGD800 million as of 31 December 2024.
Interest Coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 1.3x | No Update |
| Rating | Unfavorable | Unfavorable |
Interest coverage as of 31 December 2024 amounted to 1.3 times. This is based on the same computation as REITs (EBIT/net interest expense), whereas of 31 December 2024 the EBIT of the trust is SGD50 million while finance costs is SGD196 million. The metric is Unfavorable.
Debt Maturity Profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.8 years | 4.0 years |
| Rating | Favorable | Favorable |
Weighted average term to maturity of their debt lengthened to 3.8 years as of 31 December 2024. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 3.09 | 3.10 |
| Rating | Unfavorable | Unfavorable |
The Price to Book (“P/B”) ratio currently stands at 3.09. This is computed using the closing share price of SGD0.445 on 14 February 2025 and the net asset value per share of SGD0.144 as of 31 December 2024. The P/B ratio is Unfavorable as there are other business trusts which have lower P/B ratios.
As of 14 February 2025, the Market Capitalization is approximately SGD2,707 million.
Website: Yahoo Finance: Keppel Infrastructure Trust (A7RU.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2025 | 2.81% | SGD 0.013 |
| 2024 | 8.11% | SGD 0.036 |
| 2023 | 16.04% | SGD 0.071 |
| 2022 | 8.61% | SGD 0.038 |
| 2021 | 8.36% | SGD 0.037 |
| 2020 | 6.27% | SGD 0.028 |
For KIT, there has been fluctuations in the previous calendar years due to advance distributions paid out before the respective equity fund raisings. As prudence, their expected dividend payout on a semi-annual basis from operations is approximately SGD0.0195 per unit. This will amount to SGD0.0390 per unit when annualized for each calendar year excluding any special distribution.
With a closing share price of SGD0.445 as of 14 February 2025, this translates to an 8.76% dividend yield. For my benchmark, a general reasonable yield would be around 5.25% in the current environment, and KIT have been consistent throughout the years within the expected range. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2025Q1 – 5.25%
Key things to note
Growing towards asset light
KIT has a wide range of plants and operations. By no means it is an asset light Company. However, from an accounting point of view, they have been paying out dividends that are higher than their earnings. This is possible because of the high depreciation, which is a non-cash adjusting expense, resulting in high EBITDA as compared to profits.
For illustration purposes, imagine a scenario where you are in the business of car rental. The useful life of cars in Singapore companies are generally 10 years. This is due to the Certificate of Entitlement (“COE”) lasts only 10 years, and the value of the car is thus depreciated over its 10 years useful life. However, over the course of the 10 years, at the end of the useful life with the expiry of the COE, you will need to pay an equivalent amount to purchase a new car with a new 10-year COE. The new purchase would not be possible if you pay out dividends based on EBITDA and have no cash savings from the dividend expense.
What management is saying is that the assets of KIT do not have a high replacement cost at the end of its useful life. and the assets will still be able to continue to operate indefinitely. Thus, they do not need to save money from the depreciation expense for a potential replacement of the assets.
The result is that the net asset value of the Company will continue to decrease as they continue to pay out the dividends sustained using EBITDA. Eventually if they would like to secure new financing, their balance sheet will seem to have insufficient assets to pledge as collateral for new borrowings.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distributable Income | -35.7% | Unfavorable |
| Gearing Ratio | 40.9% | Unfavorable |
| Interest Coverage | 1.3x | Unfavorable |
| Debt Maturity Profile | 3.8 years | Favorable |
| Price to Book Ratio | 3.09 | Unfavorable |
| Overall | Unfavorable |
Overall, the metric remains Unfavorable. Their net assets continue to decrease, and this trend is likely to continue unless there are significant changes to the trust structure. Investors will have to ensure that they are comfortable with how the financials operate.
Background
KIT is the largest diversified business trust listed in Singapore. KIT’s portfolio comprises strategic businesses and assets in the three core segments of Energy Transition, Environmental Services, and Distribution & Storage. These businesses and assets provide essential products and services across a broad range of industries; and generate regular and resilient cash flows, with potential for growth that is supported by favorable long-term market dynamics and demand. This is in line with KIT’s long-term goal of delivering sustainable and growing returns to Unitholders, through a combination of recurring distributions and capital appreciation.
Keppel Infrastructure Fund Management Pte Ltd (“KIFM”) is the Trustee-Manager of KIT. KIFM is a wholly owned subsidiary of Keppel Capital, a premier asset manager with a diversified portfolio in real estate, infrastructure, data centres and alternative assets in key global markets.
Keppel Infrastructure Holdings Pte. Ltd., a wholly owned subsidiary of Keppel Corporation Limited, is the Sponsor of KIT.
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Website: Keppel Infrastructure Trust (SGX: A7RU): 2024 Third Quarter Business Update
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