- KIT delivered solid results in 9M23, led by the Energy Transition segment.
- We like the relatively stable nature of KIT’s earnings, coupled with the inherent inflation protection embedded in a large proportion of its assets.
- KIT’s credit and liquidity profiles remain solid, and we see little risk of default.
- We recommend both KITSP 3.000% 01Dec2026 Corp (SGD) and KITSP 4.110% 05May2027 Corp (SGD), with a slight preference for the 2026s given their slightly shorter maturities for a comparable yield.
About Keppel Infrastructure Trust
Keppel Infrastructure Trust (KIT) is a business trust focused on infrastructure within its core segments of Energy Transition, Environmental Services, and Distribution & Storage. Its portfolio was valued at SGD 7.3b as of 2022, primarily within the Energy Transition Segment (60%) (Chart 1).
Its Trustee-Manager is Keppel Infrastructure Fund Management (indirectly wholly-owned by Keppel Corporation) and its Sponsor is Keppel Infrastructure Holdings (also a wholly-owned subsidiary of Keppel Corporation).
Chart 1: KIT’s assets are primarily within the Energy Transition segment
Financial highlights
KIT delivered solid results in the nine months ending in 30 Sep 2023 (9M23) (Chart 2). Revenues recorded a decent increase of +6% to SGD 1,545m (note: revenues fell by -6% YoY in 3Q23) while reported EBITDA (before perpetual distributions) rose by +28% YoY to SGD 346m. In terms of profitability, profit before tax (PBT) grew by +127% to SGD 88m, while funds from operations (FFO) also grew by +37% to SGD 199m.
On a segmental level, the Energy Transition segment stood out in the 9M23 period, contributing to a large bulk of total revenues as well as PBT (Chart 3). Some contributors highlighted by management include the higher contributions from City Energy and Aramco Gas Pipelines Company (AGPC) (helped by continued gas demand in Saudi Arabia).
Chart 2: Revenue and profit highlights of KIT in 9M23
Chart 3: Energy Transition segment was a key driver of performance
Outlook
Looking ahead, we think that KIT remains poised for resilient growth moving ahead. First, we think that the nature of KIT’s business results in a high degree of earnings stability. These apply particularly to its assets in Singapore which tend to have dominant market positions in their respective sector - examples include:
- City Energy, which benefits from its market position as the sole producer and retailer of piped town gas in Singapore
- Assets within the Environmental Services segment, which typically have fairly long-term contracts (about 15 or 20 years) with Singapore statutory bodies. Negotiations are ongoing for the extension of several concessions expiring in 2024 and 2025, though we think there is little risk of these falling through with still plenty of time before expiration.
Second, we also like the inherent inflation protection present in infrastructure assets, including in KIT’s portfolio. KIT management estimates that about 65% of its portfolio either has cost pass-through mechanisms or has CPI-linked escalations. Considering the prospects for potentially higher-for-longer inflation within Singapore, we think such inflation protection should help support earnings on KIT’s assets.
(Note: KIT management estimates that another 30% of its portfolio has “price-setting capabilities” due to its market position, meaning they estimate that over 90% of its portfolio has some sort of inflation protection.)
With that being said, we acknowledge that headline growth figures could moderate slightly next year, after first-time effects of FY22 acquisitions and investments have been fully reflected across an entire year. This particularly applies to acquisitions completed in 4Q22, such as the acquisitions of German Offshore Wind Farm and Eco Management Korea Holdings (EMK); for instance, we estimate EMK may represent about a sizeable 6% of KIT’s total revenues. Nonetheless, such one-time effects are likely to be fairly mild (with acquisitions slowing down significantly in FY23), and we still expect KIT to deliver solid long-term profits supported by these acquisitions.
Taking all these together, we find that KIT as a whole is expected to see stable and decent profits over the long term.
Credit profile
We believe that KIT’s near-term liquidity profile remains solid (Table 1). Throughout 2023, KIT has focused on paying off some of its borrowings, partly through usage of its cash equivalents (which fell from FY22 to 3Q23), as well as through measures like its rights issue in Apr 2023 (which raised about SGD 183m). Consequently, its current liabilities have fallen significantly from SGD 1,327m to SGD 560m, helping to drive an improvement in various ratios including its current ratio.
Furthermore, we also believe KIT’s overall credit metrics also look resilient (Table 2). For instance, its net debt levels have fallen from FY22 to 3Q23, once again helped by its repayment of borrowings across the year-to-date. Its gearing (net debt to total assets) ratio also fell slightly as a result, to 36.8% in 3Q23. In addition, its net debt to net assets (or net debt to total equity) ratio also improved slightly to 102.1% in 3Q23. We also observe that its net debt to EBITDA ratio remains fairly well managed at 4.3X in 3Q23 (also helped by the growth in EBITDA), while its interest coverage ratio remains fairly healthy at 2.9X in 3Q23, just slightly down from 3.1X in FY22.
(Note: KIT is not a REIT and hence not subject to the typical 45% (or 50%) gearing cap for REITs by MAS, though management has an internal cap of 45%. Based on this 45% cap, KIT has about $825m of extra debt headroom).
We note that the interest paid by KIT has increased significantly from SGD 63m in 9M22 to SGD 108m in 9M23 (+70% YoY), and this is likely a reflection of the rising-rates environment since 2022. However, we think that KIT could remain relatively resilient. Management has disclosed that a majority (78.8%) of its debt is fixed and/or hedged as of 30 Sep, and a 100 bps change in interest rates would have about a 1.5% impact on 9M23 distributable income (1.5% of SGD 266.1m is about an SGD 4m impact). More importantly, we like that KIT has already completed its refinancing for 2023 with very few maturities coming up in 2024 and 2025 (Chart 4).
Overall, we think that KIT’s overall credit profile remains resilient despite the prospect of higher-for-longer rates, helped by the lack of significant maturities coming up in 2024 and 2025.
Table 1: KIT’s near-term liquidity profile remains fairly solid
| KIT's Liquidity Metrics | FY22 | 3Q23 |
| Current Assets (SGD m) [A] | 1,237.4 | 1,082.4 |
| Current Liabilities (SGD m) [B] | 1,326.6 | 560.5 |
| Current Ratio (X) [A/B] | 0.93 | 1.93 |
| Cash and Bank Deposits (SGD m) [C] | 535.7 | 423.5* |
| Cash / Current Liabilities (X) [C/B] | 40.4% | 75.6%* |
| Net Cash from Operating Activities (SGD m) [D]** | 297.0 | 201.2 |
| Operating Cash Flow / Current Liabilities (X) [D/B]** | 22.4% | 35.9% |
| Source: KIT, Bloomberg, iFAST compilations, iFAST
estimates. Data as of 3Q23. *Excludes 3Q23 recommended dividend of SGD 185.7m. Including it would give a cash position of about SGD 238m, and a ratio of about 42%. **Note: These compare 1-year figures (FY22) to 9-month figures (9M23), as FY23 figures are not yet available. 9M22 net operating cashflow was SGD 78.6m, which would give a lower ratio of 5.9% in that 9M22 period. |
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Table 2: KIT’s credit metrics look resilient
| KIT's Credit Metrics | FY22 | 3Q23 |
| Net Debt (SGD m) [A] | 2,371.4 | 2,057.4 |
| Total Assets (SGD m) [B] | 5,962.8 | 5,583.6 |
| Gearing, or Net Debt / Total Assets (%) [A/B]* | 39.8% | 36.8% |
| Net Assets (SGD m) [C] | 1,907.2 | 2,014.5 |
| Net Debt / Net Assets (%) [A/C] | 124.3% | 102.1% |
| LTM EBITDA (SGD m) [D] | 402.0 | 477.9 |
| Net Debt / LTM EBITDA (X) [A/D] | 5.9 | 4.3 |
| Interest Coverage Ratio (X) [E]** | 3.1 | 2.9 |
| Source: KIT, Bloomberg, iFAST compilations, iFAST
estimates. Data as of 1H23. *Management has an internal gearing cap of 45%, though there is no regulatory cap as KIT is not a REIT. **Ratio is disclosed by management and includes distributions on hybrid securities (incl. perpetual distributions). |
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Chart 4: KIT has few maturities coming up in 2024 and 2025
Recommendations
We first perform a comparison of KIT’s outstanding bonds with its peers, followed by a comparison between the different bonds issued by KIT.
- KIT offers a fairly decent yield pick-up of about 32 bps over Sembcorp Industry’s 2026 bonds of similar maturity (both companies focus on renewables). It also offers a pick-up of about 127 bps (2026 bonds) and 123 bps (2027 bonds) over sovereigns of a similar tenor (I-spread).
- Following that, we compare KIT’s 2026 and 2027 bonds – while we recommend either bond for investors, we maintain a slight preference for the former 2026s given the lower maturity and duration risks, coupled with the slight yield pickup (7 bps).
To summarise, we think that KIT remains a solid issuer with a low risk of default and recommend both their outstanding bonds (excluding perpetuals) maturing in 2026 and 2027, with a slight preference for their 2026s.
Table 3: Selected bonds by KIT and SCI (recommendations bolded)
| Bond Name | Maturity Date (Years to Maturity) |
Ask Price | Yield to Maturity (%) |
| KITSP 3.000% 01Dec2026 Corp (SGD) |
01 Dec 2026 (3.0) |
96.431 | 4.27% |
| KITSP 4.110% 05May2027 Corp (SGD) |
05 May 2027 (3.5) |
99.710 | 4.20% |
| SCISP 3.593% 26Nov2026 Corp (SGD) |
26 Nov 2026 (3.0) |
99.000 | 3.95% |
| Source: Bloomberg, Bondsupermart, iFAST compilations. Data as of 16 Nov 2023. | |||
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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