Will Keppel Infrastructure Trust (KIT) do a Hyflux? I have never been a big fan of business trusts. Just take a look at Asian Pay TV Trust (APTT) and Hutchinson Port Holdings (HPH) Trust. The unit price of both business trusts plunged to incredibly abysmal levels in recent years due to declining business fundamentals. Could Keppel Infrastructure be different?
Bizarrely, all three business trusts are linked to Temasek Holdings. Even more strange is that there are eerie similarities between Keppel Infrastructure Trust and Hyflux.
Like Hyflux, Keppel Infrastructure Trust owns just one power-plant (Keppel Merlimau Cogen Plant), which has been making huge losses and still counting. Similar to the ill-fated Hyflux, Keppel Infrastructure Trust issued $300 million 4.75% Perpetual Bonds. Oh yes, KIT also owns a 70% stake in SingSpring Desalination Plant, which was built by Hyflux. Gulp, all these sounds quite ominous right?
Nonetheless, with sovereign wealth fund Temasek Holdings as backer, chances of KIT share suffering the same fate as Hyflux is low. Temasek Holdings would not allow it to happen. But will KIT share price collapse like APTT and HPH Trust? Read on to see my review of KIT share price.
KIT share price to sink or swim?
With a 5-year Beta of merely 0.50, KIT share price is very stable. For the past 5 years, KIT share had hovered between $0.50 to $0.60. Distributions per unit (DPU) had also remained resilient. In fact, the DPU per quarter had increased from $0.0082 in 2014 to the current $0.0093.
On the surface, it may appear that KIT share price had been cruising along. In actual fact, the past few years saw the infrastructure player struggling to meet expectations. Indeed, the past had not been kind to KIT which had been impacted by the competitive electricity market and a dispute involving its subsidiary, Basslink, with the Australian government agency Hydro Tasmania over a 2015 power outage.
Prior to the slump to the oil price, KIT had been very profitable. For the period of FY2011 to FY2013, the average annual net profits had been consistently good, averaging between $14 million to $16 million. But the meltdown of oil price in 2014 changed the situation completely as its business unit, Keppel Merlimau Cogen (KMC), started to suffer significant losses. For 2QFY2019, KMC continued to bleed, recording losses of $19 million, making it one of the worst units for Keppel Infrastructure. Another loss-making unit is Basslink, which recorded losses amounting to $112,000. Against this background, KIT share price lost some shine.
Ixiom the game-changer?
The situation looked quite precarious for KIT share price until [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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