Keppel Infrastructure Trust (KIT SP): Buy Rating & Distributable Income Analysis (April 2025)

OCBC Investment Research Private Limited

22 April 2025

Keppel Infrastructure Trust: Distributable Income Boosted by One-Off Divestment Gain

Keppel Infrastructure Trust (KIT) is analyzed in this report, focusing on its recent performance and future prospects. The trust is seen as a defensive play amidst market volatility, supported by increasing infrastructure spending. Ada Lim, CESGA, Equity Research, is the author of this report.

Investment Thesis

• Keppel Infrastructure Trust (KIT) is positioned as a flagship investment vehicle for those seeking exposure to infrastructure businesses and assets, with a focus on sustainability, energy transition, and circular economy themes. [[1]]
• KIT’s portfolio is diversified across energy transition, environmental services, and distribution and storage sectors, located in jurisdictions with strong legal frameworks. [[1]]
• A significant portion (over 90%) of its assets are protected against inflation through cost pass-through mechanisms and robust price-setting capabilities. [[1]]
• Acquisitions are a key growth driver, supported by the Keppel ecosystem. [[1]]
• The trust is favored as a defensive investment in times of market volatility, benefiting from the secular trend of increased infrastructure spending. [[2]]

1Q25 Performance Overview

• Reported distributable income (DI) grew 27.7% year-on-year (YoY) to SGD65.0m. [[1]]
• Adjusting for one-off items, the distributable income would have decreased by 31.9% YoY to SGD45.5m. [[1]]
• The Distribution & Storage segment outperformed, with funds from operations (FFO) growing 37.9% YoY to SGD24.0m. [[1]]
• Decline in funds from operations (FFO) from the Energy Transition and Environmental Services segments. [[1]]
• Minimum direct exposure to US tariffs. [[1]]
• Fair value (FV) estimate of SGD0.50 and BUY rating maintained. [[1]]

Key Financial Metrics

Security Information:

• Ticker (Refinitiv / Bloomberg): KEPL.SI / KIT SP [[2]]
• Market Cap (USD b): 1.9 [[2]]
• Daily turnover (SGD m): 3.0 [[2]]
• Free Float: 69% [[2]]
• Shares Outstanding (m): 6,083 [[2]]
• Top Shareholder: Temasek Holdings Pte. Ltd. 30.7% [[2]]

Financial Summary (SGD m) [[2]]

Key Ratios (%) [[2]]

Source: Refinitiv, Internal estimates

Segment Performance Analysis

• Distribution & Storage: FFO grew significantly by 37.9% YoY to SGD24.0m, driven by strong performance across all assets in this segment. [[1], [2]]
• Energy Transition: FFO decreased by 15.8% YoY to SGD61.6m, primarily due to the renewables portfolio (windfarm assets and the German solar portfolio). The German solar portfolio’s interest expense recognition was delayed from 1Q24 to 2Q24. City Energy’s performance remained relatively stable. Aramco Gas Pipelines Company (AGPC) experienced lower YoY throughput, but it stayed above the minimum volume commitment. [[2]]
• Environmental Services: FFO fell sharply by 42.7% YoY to SGD12.9m. Eco Management Korea (EMK) maintained high availability and full utilization of incineration capacity, but FFO was -SGD0.5m due to landfill price volatility. The Singapore Waste and Water assets generated SGD13.4m of FFO, down 34% YoY. Keppel Marina East Desalination Plant (KMEDP) contributed for the first full quarter, offset by lower nominal contribution from Senoko WTE. The concession for SingSpring Desalination Plant is under consideration for extension as it is due to expire at the end of the year. [[2]]

Capital Management and Debt

• All debts due in FY25 have been refinanced, with the next debt tower expected in FY26. [[2]]
• Net gearing inched up 0.4 percentage points to 40.8% as of 31 Mar 2025. Factoring in the divestment proceeds from Philippine Coastal, the gearing would be approximately 38%. [[2]]
• The weighted average cost of debt increased by 18bps to 4.69% over the quarter. 75% of the debt is on fixed rates or hedged. [[2]]
• A 25bps increase in interest costs would affect 1Q25 DI by 0.8%. [[2]]

Tariff Impact and Outlook

• Limited direct exposure to US tariffs through Ixom (~SGD1m of DI), with any impact likely to be indirect. [[2]]
• Management is confident in the portfolio’s defensiveness and resilience through business cycles. [[2]]
• FY25 distribution per unit (DPU) forecast nudges down 0.3%, while the FY26 DPU forecast inches up 0.6%. [[2]]
• Fair Value (FV) estimate remains unchanged at SGD0.50, with a maintained BUY rating. [[2]]

1Q25 Results Highlights (SGD m) [[3]]

Source: Trust manager, Internal estimates

ESG Updates

• KIT’s ESG rating was upgraded in May 2024. [[3]]
• The company’s business ethics and water management practices are leading compared to global peers. [[3]]
• Corporate governance practices are in line with peers. [[3]]
• Potential improvements include enhanced disclosures on measures to reduce air pollutants and setting quantitative targets for managing health and safety. [[3]]
• KIT has established a new target in 2024 to achieve net zero emissions across Scope 1 and 2 by 2050. [[3]]
• Updated renewables investment target: achieve a renewables capacity of 2GW by 2030. [[3]]
• KIT’s total renewables capacity increased from 740MW (end-2023) to ~1.3GW (end-2024) with the acquisition of a solar portfolio in Germany. [[3]]

Potential Catalysts

• Earnings-accretive acquisitions [[3]]
• Successful divestment of mature assets and recycling of proceeds into more accretive assets [[3]]
• Extension or renewal of existing concessions due to expire in the next three years [[3]]

Investment Risks

• Lower-than-expected contractual availability resulting in lower fixed capacity payments [[3]]
• Challenges refinancing debt at reasonable costs of funding [[3]]
• Regulatory risks [[3]]

Valuation Analysis

Source: Refinitiv

Company Overview (as of 4 February 2025)

• Keppel Infrastructure Trust (KIT) is a diversified business trust listed on the Singapore Exchange, with approximately SGD9.0b in assets under management as of 31 Dec 2024. [[4]]
• KIT plays a critical role in supporting Singapore’s circular economy and driving economic growth through electricity and gas provision, waste management, and enhancing water security. [[4]]
• KIT’s investment strategy focuses on building a diversified portfolio of core and core plus infrastructure businesses and assets linked to economic growth and domestic inflation. [[4]]
• The Trustee-Manager of KIT is Keppel Infrastructure Fund Management Pte. Ltd., a wholly-owned subsidiary of Keppel Capital Holdings Pte. Ltd. [[4]]
• KIT is sponsored by Keppel Infrastructure Holdings Pte. Ltd. [[4]]
• KIT is a component of the FTSE ST Large/Mid Cap Index and the FTSE ST Mid Cap Index. [[4]]

Portfolio Composition

• By Segment (31 Dec 2024): Energy Transition (59.0%), Environmental Services (10.0%), Distribution & Storage (31.0%). [[4]]
• By Geography (31 Dec 2024): Singapore (23.0%), Philippines (3.0%), Korea (4.0%), Saudi Arabia (24.0%), Australia & New Zealand (28.0%), Europe (18.0%). [[4]]

Historical Financials

• Net Gearing (%): FY2020 (32.1), FY2021 (20.3), FY2022 (39.8), FY2023 (39.8), FY2024 (40.9). [[4]]
• Distribution per share (S cents): FY2020 (3.72), FY2021 (3.78), FY2022 (3.82), FY2023 (6.19), FY2024 (3.90). [[4]]

Company Financials

Income Statement (In Millions of SGD except Per Share) [[5]]

Profitability Ratios [[5]]

Credit Ratios [[5]]

Source: Refinitiv

Analyst Declaration [[6]]

The analyst(s) who prepared this report certifies that the opinions contained herein accurately and exclusively reflect his or her views about the securities of the listed entity, and that he or she has taken reasonable care to maintain independence and objectivity in respect of the opinions herein.