DBS Group Research analyst Suvro Sarkar is keeping “buy” on Keppel Infrastructure Trust (KIT) with a target price of 57 cent citing dividend certainty and inorganic growth push.
After a brief hiatus in 2023, KIT is back on the M&A bandwagon, says Sarkar. In early 2024, KIT acquired Ventura Motors for A$600 million. In November, it closed the acquisition of Marina East desalination plant.
“To keep gearing in check, KIT has successfully completed a $400 million fund raise in 2024, following a $300 million equity fund raising exercise in FY2023, which demonstrates investor confidence. Meanwhile, it retains the flexibility to divest assets like Philippine Coastal to lock in gains and redeploy capital as well,” says Sarkar.
KIT’s distributions are also largely not affected by economic cycles, which is a rarity compared to the Singapore REITs space, he adds. This is due to its portfolio, which comprises critical infrastructure assets that are not typically impacted by the pandemic or economic downturns.
Fluctuations in fuel prices may affect the timing of cash flows at certain assets — otherwise, KIT's cash flows are highly predictable, says Sarkar. “Exposure to interest rate hikes is also not a big worry with approximately 74% of floating interest rate exposure hedged. KIT also maintains enough distribution buffers to ensure smooth distributions.
“In FY2023, KIT paid out 6.19 cents in distributions, including a special distribution of 2.33 cents. In 9M2024, distributable cash flows are down y-o-y owing to one-off issues but this should not affect regular distributions,” he adds.
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KIT is currently trading at a “healthy” forward yield of over 8.5%, which is higher than most comparable peers in the Singapore market. It also carries little downside risk in the near term despite global growth uncertainties, the analyst points out.
As at 10.11am, units in KIT are trading at an unchanged 44.5 cents.
