What Investors Need to Know about Keppel Infrastructure Trust’s Latest Earnings Report

Keppel Infrastructure Trust (SGX:LH4U) released its third quarter earnings report on 16 October 2014. The reporting period was from 1 July 2014 to 30 September 2014. The business trust was formerly known as K-Green Trust, which was focused on “green” infrastructure assets. On 15 April 2014, unitholders approved an investment mandate for the business trust to expand to utilities infrastructure assets, primary and alternative energy assets and other infrastructure assets.

Currently, its portfolio includes the Senoko Waste-to-Energy plant, the Keppel Seghers Ulu Pandan NeWater plant, and the Keppel Seghers Tuas Waste-to-Energy plant.

Financial Highlights

For the third quarter of 2014, revenue fell 5.7% to $16.1 million compared to the third quarter of 2013. In line with this, profits also fell 12.5% for the same period. Part of the reason was that operating expenses only reduced 3.6% compared to the same quarter for last fiscal year. The trustee-managers fee, which comprises of a fixed management fee and performance fee of 4.5%, rose by 2.2% while trust expense increased by a hefty 76.3% compared to the previous year’s quarter.

However, operating cash-flow increased to around $14 million, or up 1.5%. Lastly, earnings per unit fell to 53 cents in the latest quarter, down 11.7% from the third quarter of 2013.

The business trust ended the quarter with a cash and cash equivalents position of $34.4 million, up 20.6% from $28.5 million from the third quarter last year. The business trust did not have any borrowings as of 30 September 2014.

Operational Highlights

The drop in revenue was attributed to the lower production of NEWater, and lower power tariff arising from changes in fuel price.

For context, its Senoko and Tuas plant derives income from capacity payments, which has less correlation with economic or demographic fluctuations. However, income for the Ulu Pandan facility is derived from equal parts of capacity availability payments and NEWater output payments. Along with this, the production of NEWater is subject to demand from the Public Utilities Board (PUB).

On 26 September 2014, Keppel Business Trust entered into an agreement with the National Environment Agency (NEA) to increase its contracted incineration by 10%. The upgrade is planned to take place between the third quarter of 2015 to the third quarter of 2016.

Foolish summary

All three assets in the business trust have long-term concession agreements with Singapore statutory bodies namely, NEA and PUB. This provides stability in terms of revenue for the assets. Foolish investors might want to keep an eye on its operating cash flow, and how it can continue to fund its distributions.

Keppel Infrastructure Trust last traded at S$1.04 last Friday. That translates to a historical price-to-book ratio of 1.18, and a distribution yield of around 7.5%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.