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Keppel Corporation Limited Wins Project To Build Fourth Desalination Plant In Singapore

Keppel Corporation Limited (SGX: BN4) has won the project to build the fourth desalination plant in Singapore. Its infrastructure arm, Keppel Infrastructure, has been named by PUB as the winner to design, build, own, and operate the desalination plant for a 25-year concession period after its completion.

The plant, located in Marina East, is expected to be completed by 2020 and has the ability to produce about 137,000 cubic metres of fresh water per day. This is about the same capacity as the SingSpring desalination plant that Keppel Infrastructure Trust (SGX: A7RU) is managing at the moment.

Keppel Infrastructure Trust, which is part of Keppel Infrastructure’s portfolio, has an effective interest of 70% in the SingSpring desalination plant, with the remaining 30% owned by Hyflux Ltd (SGX: 600).

SingSpring provided S$37.6 million in revenue and S$5.2 million in profit in 2014. But, the upcoming Marina East plant should be even more profitable for Keppel Infrastructure given that it is technologically more advanced, having the ability to treat both sea water and fresh water from the Marina Reservoir.

What is unknown now is whether Keppel Infrastructure will sell the project to Keppel Infrastructure Trust once the project is completed or if it will hold onto the concession.

But when I look at the business structure of Keppel Corporation, I think it is reasonable to assume that the new plant will be sold to Keppel Infrastructure Trust in the future once its operations are stabilised.

Keppel Infrastructure Trust is trading at 2.2 times tangible book value at the moment and offers a 7.9% distribution yield. Meanwhile, Keppel Corporation is trading at 10.3 times trailing earnings and offers a 5.1% dividend yield.

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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 writer Stanley Lim owns shares in Keppel Corporation.