The coronavirus outbreak has roiled the stock market as investors run for their lives. For sure, numerous countries all over the world are facing the real prospect of drastic economy slow-down Retrenchments will surge and consumer spending will turn cautious. Yet despite all these, people still need water and electricity to carry on their daily lives. Being the largest infrastructure business trust in Singapore, is Keppel Infrastructure Trust (KIT share price) immune to the virus?
Before investors get carried away and buy into KIT share price, it is important to understand the business fundamentals of the company first. As a matter of fact, KIT share price had been very resilient despite the wave of challenges it encountered in recent years. But investing in business trust requires a different approach as compared to buying shares. Beside entering at the right KIT share price, you need to assess the factors that may affect the distributions.
In 2018, KIT share price had been affected by the challenging electricity market and a dispute of its subsidiary, Basslink, with the Australian government agency Hydro Tasmania over a 2015 power outage. There were also much uncertainties relating to the operational performance at SingSpring Desalination Plant because of the developments at embattled Hyflux.
While the virus is unlikely to affect KIT’s businesses, the crash of oil price on 9 March 2020 is likely to sting KIT share price. Keppel Infrastructure Trust owns one power-plant, Keppel Merlimau Cogen (KMC) Plant, which has been making huge losses since the start of the oil slump in 2014. For full-year 2019, losses before tax for KMC amounted to $40 million, an increase from $33.6 million in last year.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in KIT before. Whether KIT share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
KIT share price out of the woods?
On the surface, it certainly seems that the management had turned around the corner with full-year profit for FY2019 at $10.2 million, vis-à-vis the loss of $2.3 million in FY2018. Rightfully, a profitable full-year result would bode well for KIT share price. It’s a shame that the operating environment had turned dark significantly and caused KIT share price to turn slightly bearish again.
A closer look revealed that the profit was due mainly due to gain from divestment of 51% stake in Datacentre One. On 16 September 2019, KIT divested its 51% stake in DataCentre One to Keppel DC REIT for a consideration of $102.9 million. The divestment helped to unlock value and enhance war chest for more acquisitions to bolster growth.
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