The Singapore-based infrastructure fund’s long-term constructed assets account for 60% of its distributable income in 1QFY2025. Its funds from operations, a key measure of cash flow for infrastructure and REIT-style businesses, has been growing steadily at 6.3% per year from FY2019 to FY2024, the analysts note.
Furthermore, cost pass-through mechanisms for regulated assets should support inflation-resistant and defensive cashflows, they add.
Li and Lim also like KIT for its fast-growing funds from operations, which have supported the trust’s “stable track record” of a 1% distribution per unit (DPU) since FY2022. KIT’s FFO has a compound annual growth rate (CAGR) of 6.3% from FY2019 to FY2024.
The analysts also highlight KIT’s growing evergreen portfolio in renewables, public transport, specialty chemicals and energy, which “protects the portfolio’s valuation in the long run, in our view”.
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“In addition, its existing business segments have expanded product offerings to drive organic growth (for example, its gas asset City Energy added [the] electric vehicle (EV) business) and to remain relevant. Some assets within KIT’s portfolio (windfarm portfolio and subsea cable service provider GMG) present opportunities for secular growth,” they add.
Divestments to improve balance sheet
Despite the positives, KIT’s relatively high gearing ratio of 40.8% as at March 31, remains a concern.
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As such, the recent divestment of KIT’s 24.6% stake in Ventura for $109 million to Samsung Asset Management could improve KIT’s balance sheet, the analysts note. KIT announced the sale on June 10.
The way the analysts see it, the sale could pare down debt, and coupled with an improving interest rate outlook, could strengthen the company’s balance sheet and pave the way for accretive acquisitions in the upcoming financial year.
The way the analysts see it, the sale could pare down debt, and coupled with an improving interest rate outlook, could strengthen the company’s balance sheet and pave the way for accretive acquisitions in the upcoming financial year.
Attractive returns
For the FY2025 to FY2027, the analysts expect KIT to generate $270 to $280 million per year in funds from operations and $190 to $210 million in distributable income.
They expect the company to pay 3.9 cents per share in FY2025, which represents a yield of 10% based on KIT’s trading price of 39.5 cents as at June 26, a day before the release of the analysts’ report.
They also see potential for a share price correction with correlation to the average DPU of 7.3%, suggesting that the company may be undervalued.
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Key downside risks include policy risks, unexpected volatility in oil and gas prices, unexpected weather conditions and safety hazards.
Li and Lim’s target price represents a 13.5% upside from KIT’s June 26 trading price. Adding expected dividend income to the 13.5% gain, shareholders could potentially see a total return of 24%.
The analysts’ net profit estimates for FY2026 and FY2027 are $54.3 million and $58.5 million respectively, putting fully diluted core price-to-earnings (P/E) at 22.69 times and 21.09 times.
As at 12.30pm, units in KIT are trading 0.5 cents higher or 1.27% up at 40 cents
