Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

An inquisitive investment analyst with background in both finance and computing. Covering ECM research, biotech, market data analytics.

Asia Pac IPO & Placement Research, China biotech

Keppel Infrastructure Trust Placement - Scaled Down but Large Deal; Very Well Flagged Deal

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Keppel Infrastructure Trust / Equity Capital Markets

Keppel Infrastructure Fund (KIT) is raising S$525m &nbsp;through a combination of primary placement and preferential offering to existing shareholders. KIT will use the proceeds to buy a power generation plant from Keppel Energy, a wholly owned subsidiary of Keppel Infrastructure, the sponsor of KIT. We would take the deal towards the mid to low end as overall the yield at the look end looks adequate to us, but we expect the upside to be limited.&nbsp;<ul><li>Adequate&nbsp;yield at low end but no DPU growth. The placement price represent dividend yield of 6.86-7.40%&nbsp;for 2015E (pro-forma), 2016E, and 2017E. Its 2016E dividend yield is also unattractive, compared to its peers average of 7.68%.&nbsp;However, there is limited DPU growth with the company expected to pay out more than 100% in 2015 while this will decline going forward leading to a flattish DPU for unitholders.&nbsp;</li><li>On the flip side this remains a yield play and with most of its assets tied up in long term contracts the returns should be fairly stable for the foreseeable future.</li><li>The primary investors in REITs and business trusts in Singapore remains property linked funds, however, since the deal has no links to property investment we expect property funds will not be active participants. In addition, we are hearing that the deal&nbsp;is&nbsp;sold&nbsp;to private banking clients, suggesting lack of interest from institution investors.&nbsp;</li><li>We also don't like the fact that its&nbsp;assets have&nbsp;high depreciation and might need heavy investment in the future. If we look at other valuation metric, such as PER, the offer prices indicate 88-94x 2016E EPS, thanks to heavy depreciation that's&nbsp;"non cash". &nbsp;</li></ul>Thus, given where the comps are trading and the lack of growth in the structure, we don't expect a stellar performance post listing. &nbsp;

Keppel Infrastructure Fund (KIT) is raising S$525m &nbsp;through a combination of primary placement and preferential offering to existing shareholders. KIT will use the proceeds to buy a power generation plant from Keppel Energy, a wholly owned subsidiary of Keppel Infrastructure, the sponsor of KIT. We would take the deal towards the mid to low end as overall the yield at the look end looks adequate to us, but we expect the upside to be limited.&nbsp;Adequate&nbsp;yield at low end but no DPU growth. The placement price represent dividend yield of 6.86-7.40%&nbsp;for 2015E (pro-forma), 2016E, and 2017E. Its 2016E dividend yield is also unattractive, compared to its peers average of 7.68%.&nbsp;However, there is limited DPU growth with the company expected to pay out more than 100% in 2015 while this will decline going forward leading to a flattish DPU for unitholders.&nbsp;On the flip side this remains a yield play and with most of its assets tied up in long term contracts the returns should be fairly stable for the foreseeable future.The primary investors in REITs and business trusts in Singapore remains property linked funds, however, since the deal has no links to property investment we expect property funds will not be active participants. In addition, we are hearing that the deal&nbsp;is&nbsp;sold&nbsp;to private banking clients, suggesting lack of interest from institution investors.&nbsp;We also don't like the fact that its&nbsp;assets have&nbsp;high depreciation and might need heavy investment in the future. If we look at other valuation metric, such as PER, the offer prices indicate 88-94x 2016E EPS, thanks to heavy depreciation that's&nbsp;"non cash". &nbsp;Thus, given where the comps are trading and the lack of growth in the structure, we don't expect a stellar performance post listing. &nbsp;

Quicknote: Raising equity to buy Power asset from Keppel, lack of DPU growth could limit upside