RHB initiates coverage on Keppel Infrastructure Trust with ‘buy’ call

The analyst sets a target price of S$0.55 and says the trust should have a ‘modestly growing’ distribution profile

RHB on Wednesday (Nov 26) initiated coverage on Keppel Infrastructure Trust (KIT) with a “buy” call, citing a high and well-covered yield backed by inflation-linked, concession and contract-backed cash flows.

KIT is the largest infrastructure business trust on the Singapore Exchange by enterprise value. In October, its nine-month distributable income rose 59.2 per cent to S$168.9 million year on year.

This month, it deepened its push into the digital infrastructure segment with a S$119 million purchase of a 46.7 per cent stake in subsea cable maintenance and installation vessel operator Global Marine Group (GMG). The transaction was completed on Wednesday.

RHB analyst Shekhar Jaiswal viewed the purchase positively, setting a S$0.55 target price on the counter. This represents a 17 per cent upside from Tuesday’s closing price of S$0.47.

He said that contributions from the GMG investment, key near-term catalysts from concession extension, disciplined capital recycling and sponsor Keppel’s engineering-led platform should “support a modestly growing” distribution profile and “scope for yield compression”.

He noted that KIT offers “diversified exposure” to essential infrastructure across energy transition, environmental services, and distribution and storage. This comes with largely availability-based, fixed-fee, inflation-linked cashflow backed by sovereign and quasi-sovereign counterparties.

Recent movements such as the GMG stake buy, Ventura stake sale, and 2024’s Marina East Water acquisition help it extend long-duration, infrastructure-like income, he added. Active capital recycling and redeploying divestment proceeds into higher-yielding assets also support this.

“Supported by Keppel’s origination and operating capabilities and a visible deal pipeline, KIT is well positioned for accretive growth, while its 8.6 to 8.7 per cent forward yield appears unduly elevated relative to its risk profile,” said the analyst.

Still, he pointed out that key risks for KIT include contract renewal, as well as regulatory and policy uncertainty risk across Singapore concession assets.

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Acquisition and integration risk from platform and bolt-on deals could also dilute distribution per unit if “returns underperform” or “capital expenditure is higher than expected”.

Additionally, operational risks such as outages, rising spending on ageing assets and higher leverage to fund growth may pressure KIT’s cashflow and constrain distribution growth, said Jaiswal.

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