Following the acquisition, KIT will provide equity commitments of up to US$52.5 million to fund GMG’s growth plans such as building new vessels over the next three years.
KIT will be funding the acquisition using a mix of internal sources and, or external borrowings.
GMG maintains around a third, or 450,000km of global subsea cable length and has installed 320,000km of global cumulative installed subsea cable length.
According to Lim, 80% of GMG's FY2024 revenue is secured by long-term maintenance zone and charter contracts with customers like telcos and hyperscalers.
See also: RHB raises target price for DFI Retail following sale of Cold Storage, Giant supermarkets
These contracts include provisions for inflation adjustments and pass-through clauses for related operational costs.
"High barriers to entry and an entrenched customer base should provide GMG with a sustainable competitive advantage," says Lim.
According to Lim in her April 1 note, this investment will help diversify KIT's portfolio.
See also: Jefferies reiterate DBS as their preferred bank given lowest NIM margin sensitivity, TP $52
The acquisition of this stake in GMG marks KIT’s first foray into the digital infrastructure segment, and is expected to generate long-term, stable cash flows for the trust.
On a historical pro forma basis, assuming that the proposed transaction had been completed on Jan 1 2024, KIT’s FY2024 funds from operations (FFO) would have been 1.3% higher at $294.6 million, while distribution per unit (DPU) would improve 3.5% to 4.04 cents.
As at Dec 31 2024, NAV per unit and net gearing would have been flat and 1.2 percentage points (ppt) higher at 41.6%, respectively.
Post-completion, KIT’s portfolio will be more diversified, with assets under management increasing from $8.7 billion as at Dec 31 2024 to around $9 billion.
"Subsea cables are the hidden backbone of the Internet, serving as the arteries of an increasingly digitalised economy.
"As reliance on generative artificial intelligence (AI), edge computing, and the Internet of Things (IoT) continues to grow, so does the number of data centres required to support these technologies.
"This will entail a corresponding expansion in underlying infrastructure – including subsea cables to handle both higher energy needs and computing power – which we think bode well for companies like GMG," says Lim.
For more stories about where money flows, click here for Capital Section
As an interested party transaction, this deal will require the approval of KIT shareholders at an EGM to be called.
"Pending the necessary approvals and an indicative timeline for the transaction, we leave our forecasts intact and reiterate our fair value estimate of 50 cents," adds Lim.
As at 10.49 am, KIT trades at 42 cents.
