It also has availability-based, fixed-fee, inflation-linked cash flow backed by sovereign and quasi-sovereign counterparties.
Jaiswal also likes KIT for its recent moves such as the acquisitions of Victorian bus service provider, Ventura, the Keppel Marina East Desalination Plant and Global Marine Group (GMG), as well as its move to conduct active capital recycling. The trust has been redeploying its divestment proceeds into higher-yielding assets and extending its long-duration, infrastructure-like income, he adds.
To him, KIT, supported by Keppel’s origination, operating capabilities and a visible deal pipeline, is “well-positioned” for accretive growth. At the same time, its forward yield of 8.6% to 8.7% appears to be “unduly elevated” relative to its risk profile.
Between FY2024 to FY2027, Jaiswal is forecasting a compound annual growth rate (CAGR) of 1.2% for KIT’s funds from operations (FFO), with distributions fully covered over FY2025 to FY2027. The analyst is also estimating KIT’s distribution per unit (DPU) to grow at a CAGR of 0.7% over the same period.
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His target price is derived from a dividend discount model, which factors in a cost of equity of 8.5%, based on a 2.8% risk-free rate and 5.8% market risk premium, and 1.5% terminal growth.
Key near-term catalysts include earnings contributions from GMG and a clearer expression of its digital infrastructure strategy and capital deployment. GMG’s contributions have not been factored in Jaiswal’s estimates, implying further upside.
At the same time, KIT’s distributable income growth should be supported by concession and contract extensions in Singapore and bolt-on acquisitions funded through capital recycling and balance sheet capacity.
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Meanwhile, key risks include uncertainty risks over the renewal of contracts, as well as potential changes in regulations and policies across KIT’s Singapore concession assets. Acquisitions and integration risks from its platform and bolt-on deals could also dilute KIT’s DPU if returns have underperformed or capital expenditures are higher than expected.
Jaiswal also sees operational risks such as outages, sustaining capex on ageing assets and higher leverage to fund growth, which may pressure cash flow and constrain distribution growth.
For FY2025, the analyst anticipates KIT’s total turnover to come in at $2.24 billion with a recurring net profit of $61 million and a dividend yield of 8.6%.
As at 12.06pm, units in KIT are trading 0.5 cents lower or 1.06% down at 46.5 cents.
