Latest Earnings From Keppel Infrastructure Trust: A Stable Quarter

Keppel Infrastructure Trust (SGX: A7RU) reported its second-quarter earnings last evening. The reporting period was from 1 March 2016 to 30 June 2016 (2Q FY16).

For a brief background, Keppel Infrastructure Trust is a business trust that invests in infrastructure assets. Its portfolio contains waste-to-energy plants, a desalination plant, a water treatment facility, electricity utilities, and a gas producer. There is even a data centre and a telecommunications infrastructure business.

Keppel Infrastructure Trust came into its current form only in mid-2015 following the merger of the old Keppel Infrastructure Trust and CitySpring Infrastructure Trust as well as the purchase of the Keppel Merlimau Cogen Plant.

The trust currently has four major business segments, namely, City Gas, Concessions, KMC (Keppel Merlimau Cogen Plant), and Others.

With that, let’s take a look at Keppel Infrastructure Trust’s latest earnings.

Financial and balance sheet highlights

Due to a change in the trust’s reporting period as a result of the merger and acquisition, comparisons for the reporting quarter will be drawn with the results from 1 July 2015 to 30 September 2015 (2Q FY15).

Here’s a rundown on some of Keppel Infrastructure Trust’s latest financial figures:

  • Revenue for 2Q FY16 clocked in at S$137.4 million, down by 10.2% from 2Q FY15.
  • Distributable cash flow for the reporting period came in at S$38 million, which was 18.2% higher compared to the S$32.9 million seen in 2Q FY15.
  • Despite the higher distributable cash flow, the trust’s distribution per unit (DPU) for the reporting quarter remained unchanged at 0.93 cents.
  • Kepple Infrastructure Trust reported an adjusted net asset value per unit of S$0.315 for the period, down from the S$0.359 seen as at end-September 2015.

Let’s look at Keppel Infrastructure Trust’s debt profile now.

  • Gearing for the reporting quarter came in at 36% with a blended average interest rate of 4%-5%. Total debt stood at S$1.71 billion with a weighted average term to expiry of approximately 3.6 years. Roughly 85% of the trust’s total debt was also hedged.
  • 59% of Keppel Infrastructure Trust’s loans are denominated in the Singapore dollar. The remainder is in the Australian dollar; these loans act as a natural hedge for the trust’s Australian dollar cash flows.

Business highlights

In terms of distributable cash flow, most of the segments saw growth when compared to the numbers seen in 2Q FY15.

City Gas was the standout as its distributable cash flow soared by 65% from S$7.3 million to S$12.1 million. But, the growth came from lower distributable cash flow in 2Q FY15 as a result of the time lag in the adjustment of gas tariffs to reflect the segment’s actual fuel costs.

Concessions was the most important segment for the trust as it contributed S$17.4 million in 2Q FY16, up slightly from S$17.0 million. Progressive completion of the Senoko boiler upgrade had helped the segment’s cash flows.

The Others segment had a distributable cash out-flow of S$2.56 million, but it is still better than the cash out-flow of $3.38 million in 2Q FY15. Lower interest expenses helped with the improvements seen here.

Lastly, we have KMC, which saw its distributable cash flows dip slightly from S$12 million in 2Q FY15 to S$11.14 million in the reporting quarter. Higher finance costs had ate into the segment’s cash flows.

A future outlook

Keppel Infrastructure Trust’s commentary on its future prospects in 2Q FY16’s earnings release is largely similar to that in 1Q FY16. You can review the company’s commentary in 1Q FY16 here.

The following is a list of what’s new:

  • The trust commented in 2Q FY16 that “City Gas’ performance could fluctuate depending on changes in economic conditions and time lag in the adjustments of gas tariffs in response to changes in fuel costs.”
  • “Five out of six boilers [at the Senoko Waste-to-Energy Plant] have been completed as at 30 June 2016.” Back in 1Q FY16, only three boilers were completed.
  • “While intended to be neutral over the long-term, the CRSM [Commercial Risk Sharing Mechanism] in Basslink may fluctuate in the short-term and such fluctuations will affect the revenues of Basslink. Following a review in April 2016, the CRSM has been adjusted from a band of +25%/-20% to +12.5%/-12.5%, thus reducing the volatility in the facility fees to be received.” Previously, Keppel Infrastructure Trust had commented in 1Q FY16’s earnings release that a review of the CRSM may be conducted in April 2016; turns out it has.
  • DataCentre One has started producing cash flows for the trust after being handed over on April 2016; back in 1Q FY16, the data centre was not producing cash flows yet.
  • Basslink was taken out of service in late 2015 and the cause is still being investigated. The trust provided some updates and still believes that the culprit is a “force majeure event.” In 1Q FY16, the trust expected Basslink to resume operations in June 2016 and that’s indeed been the case; Basslink came back online on 13 June 2016. Keppel Infrastructure Trust also commented in the reporting quarter’s earnings release that any damages or losses related to Basslink’s downtime can be insured – it has been “confirmed” by the insurer. Keppel Infrastructure Trust will provide updates to its investors when more information is available.

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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 Esjay does not own shares in any companies mentioned.