Keppel Infrastructure Trust - Credit Suisse
Transcript of Keppel Infrastructure Trust - Credit Suisse
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
03 August 2015
Asia Pacific/Singapore
Equity Research
Multi Utilities
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) INITIATION
In infrastructure we trust
■ Initiate coverage with OUTPERFORM. With assets valued at more than S$4
bn in the power generation, gas retailing, electricity transmission, water and
wastewater treatment, and waste management segments, we believe that
Keppel Infrastructure Trust has visible cash flows, potential organic and
inorganic growth opportunities, as well as an attractive dividend yield.
■ Defensive play on infrastructure spending. Created through the
combination of Keppel Infrastructure Trust and Cityspring Infrastructure Trust,
as well as the acquisition of a 51% stake in Keppel Merlimau Cogen, the
enlarged Keppel Infrastructure Trust is the largest Singapore infrastructure-
focused business trust. Most of its assets are backed by long-term concession
agreements of between 9.5 and 20 years with government-linked entities,
providing good visibility to its near-term distributable cash flow.
■ Growth drivers from recovery in Basslink and potential acquisitions.
Inorganic growth may come from acquisitions from Sponsor Keppel
Infrastructure or third parties. Its 0.40x net gearing implies about S$805 mn
debt headroom assuming a 50% leverage. In addition, there could be
potential upside to distributable cash flow from the review of Basslink
Commercial Risk Sharing Agreement (CRSM) in 2Q16.
■ Attractive dividend yield of 7.2%. Our target price of S$0.57 is based on a
discounted cash flow over the contract duration of assets, assuming cost of
equity of 6.25%. The implied dividend yield of 6.5% at our target price would
be in line with peers, as well as normalised spread over ten-year Singapore
government bond yield. Key risks include lower-than-expected availability of
assets and interest rate risks, amongst others.
Share price performance
80
90
100
110
120
0
0.5
1
1.5
2
Feb-14 Jun-14 Oct-14 Feb-15
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the
FTSE STRAITS TIMES IDX which closed at 3320.9 on
26/06/15
On 26/06/15 the spot exchange rate was S$1.36/US$1
Performance over 1M 3M 12M Absolute (%) -3.7 -6.7 8.3 — Relative (%) -1.3 0.2 12.0 —
Financial and valuation metrics
Year 12/14A 12/15E 12/16E 12/17E Revenue (S$ mn) 716.0 707.1 719.2 743.6 EBITDA (S$ mn) 250.4 249.8 250.6 262.9 EBIT (S$ mn) 133.7 145.3 149.0 164.1 Net profit (S$ mn) 16.7 37.0 41.6 50.8 EPS (CS adj.) (S$) 0.01 0.01 0.01 0.01 Change from previous EPS (%) n.a. Consensus EPS (S$) n.a. — — — EPS growth (%) n.a. 63.6 12.3 22.1 P/E (x) 88.6 54.2 48.2 39.5 Dividend yield (%) 0 7.2 7.2 7.2 EV/EBITDA (x) 14.0 14.1 14.0 13.3 P/B (x) 1.1 1.7 1.8 2.0 ROE (%) 1.3 2.9 3.6 4.8 Net debt/equity (%) 94.6 104.7 115.5 124.9
Source: Company data, our estimates
Rating OUTPERFORM* Price (30 Jul 15, S$) 0.52 Target price (S$) 0.57¹ Upside/downside (%) 9.6 Mkt cap (S$ mn) 2,006 (US$ 1,459) Enterprise value (S$ mn) 3,512 Number of shares (mn) 3,856.93 Free float (%) 100.0 52-week price range 0.58 - 0.47 ADTO - 6M (US$ mn) 0.81
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Gerald Wong, CFA
65 6212 3037
Shih Haur Hwang
65 6212 3024
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 2
Focus charts Figure 1: Keppel Infrastructure Trust is the largest infrastructure-focused business trust in Singapore
Asset Type of asset Location Age (years) Design
capacity
Contracted
capacity
Concession
expiry
Counterparty
(offtaker)
KMC Gas-fired power plant Singapore ~ 4* 1,300 MW n.a.
2030, with
option for 10Y
extension
Keppel
Electric
Senoko WTE Waste incineration plant Singapore 23 2,400 t/day 2,100 t/day 2024 NEA
Tuas DBOO Waste incineration plant Singapore 6 888 t/day 800 t/day 2034 NEA
Ulu Pandan NEWater plant Singapore 8 148,000 m
3/
day
148,000 m3/
day 2027 PUB
Singspring Seawater desalination
plant Singapore 9
136,380
m3/ day
136,380
m3/ day
2025, with
possibility of
extension
PUB
City Gas Town gas supplier Singapore >100 1.6 mn
m3/ day
n.a. n.a. Diversified
client base
Basslink Electricity interconnector Australia 8 n.a. n.a.
2031, with
option for 15Y
extension
Hydro
Tasmania
DataCentre One Data centre Singapore
To be
completed in
1Q16
n.a. n.a.
20 years from
completion,
with option for
8Y extension
1-Net
NB: Excludes CityNet where Keppel Infrastructure Trust acts as the trustee-manager. * Weighted average age Source: Company data as of
March 2015
Figure 2: Most of the assets are backed by long-term
concession agreements of 9.5 to 20 years
Figure 3: 0.40x net gearing implies about S$805 mn debt
headroom assuming 50% leverage
2015 2020 2025 2030 2035 2040 2045 2050
CityNet
Tuas DBOO
Ulu Pandan
Senoko Plant
Singspring
City Gas
Datacentre One
Basslink
KMC
Existing contract Existing contract extension option
n.a.
1688
351805
1358
2051
0
500
1000
1500
2000
2500
3000
3500
4000
0.40x FY15Eyear end net
gearing
0.45x 0.50x 0.55x 0.60x
Source: Company data NB: Company data
Figure 4: Our target price of S$0.57 is based on cost of equity of 6.25%
Beta Cost of equity Value per share (S$) Implied Yield
0.50 6.25% 0.57 (Target Price) 6.5%
0.50 6.3% 0.58 6.5%
0.54 6.5% 0.55 6.7%
0.56 6.6% 0.54 6.9%
0.58 6.8% 0.53 7.0%
0.60 6.9% 0.52 (Current Price) 7.2%
0.62 7.0% 0.51 7.3%
Source: Company data, Credit Suisse estimates
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 3
In infrastructure we trust Largest Singapore infrastructure business trust
Created through the combination of Keppel Infrastructure Trust (KIT) and Cityspring
Investment Trust (CIT), as well as the acquisition of a 51% stake in Keppel Merlimau
Cogen (KMC), the enlarged Keppel Infrastructure Trust (Enlarged Trust) is the largest
Singapore infrastructure-focused business trust with total assets in excess of S$4 bn. The
enlarged KIT has assets in the power generation, gas retailing, electricity transmission,
water and wastewater treatment, as well as waste management segments. Keppel
Merlimau Cogen (KMC) is the largest asset of the Enlarged Trust, representing 43% of
total assets and 18% of adjusted EBITDA in CY2014. Most of KIT's assets have long-term
concession agreements of between 9.5 and 20 years with creditworthy counterparties
such as government-linked entities.
Proxy to rising infrastructure spending in Singapore
According to the Singapore Budget 2015, total infrastructure spending will increase to
S$20 bn (4.8% of GDP) in FY2015 and to S$30 bn by the end of the decade. As a result,
we expect an increase in investment in utilities infrastructure projects such as Singapore's
third desalination plant. In the water resourcing strategy announced in June 2010, PUB
(Singapore’s national water agency) laid out plans to triple the country’s water reuse
capacity and to increase the desalination capacity eight-fold over the next 50 years. Within
the Singapore power market, capacity addition is expected to slow down in 2015–16, with
only 563 MW of capacity growth expected. With demand growth expected to exceed
supply growth from 2015E, we expect the reserve margin to decline to 44% in 2015E.
Growth drivers from acquisitions and asset injection
With negative Basslink Commercial Risk Sharing Mechanism (CRSM) payments of A$11–
17 mn in FY11–14, we expect a review of the CRSM with HydroTasmania (HT) in April
2016 to drive potential upside to cash earnings. The CRSM is meant to be neutral to both
parties in the long run, and the maximum negative payments will adjust to 12.5% of base
fee (from 20% currently) if both parties cannot agree. We also expect growth in EBITDA
from the completion of DataCentre One in 1Q16, a datacentre which is signed on an initial
20-year lease with 1-Net, a wholly owned subsidiary of Mediacorp. KIT also has first rights
over the remaining 49% of KMC, and the right of first refusal (ROFR) to acquire assets
developed or incubated by Keppel Infrastructure. Based on a pro-forma net gearing of
0.40x in end-2015, we estimate a S$805 mn debt headroom assuming a 50% leverage.
This would also enable KIT to pursue third-party acquisitions with an initial focus on
existing energy, telecoms, waste and water sectors.
Initiate with OUTPERFORM
Our target price of S$0.57 for Keppel Infrastructure Trust is based on our DCF valuation.
Our DCF valuation uses detailed forecasts between over the existing contract life of the
assets, as well as over the extension period for contracts with options. We do not assign a
terminal value for all assets with the exception of City Gas. We also assume a cost of
equity of 6.25% derived based on a market risk premium of 6.5%, a risk-free rate of 3%
and beta of 0.5x, in line with peers. Our target price of S$0.57 would imply a dividend yield
of 6.5%, in line with the market cap weighted average 2016 yield of ten longest weighted
average lease expiry (WALE) REITS, as well as normalised spread over ten-year
Singapore government bond yield. Key risks would include lower-than-expected
availability of assets, changes to the KMC tolling fee in the event of material adverse
change, variability in City Gas cash earnings, change in regulatory structure of gas
industry in Singapore, interest rate and FX risks.
KIT is the largest Singapore
infrastructure-focused
business trust with total
assets in excess of S$4 bn
Total infrastructure spending
is expected to increase to
S$30 bn by 2020 from S$20
bn in 2015.
We expect a review of the
CRSM with HydroTasmania
in April 2016 to drive
potential upside to cash
earnings.
Our target price of S$0.57
for Keppel Infrastructure
Trust is based on our DCF
valuation.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 4
Figure 5: Keppel Infrastructure Trust: Summary of financials
S$'000 2014 2015E 2016E 2017E
Income statement
Revenue 715,954 707,099 719,166 743,611
Other income 4,110 2,920 2,920 2,920
Other (losses)/gains–net (4,342) - - -
Expenses (722,318) (693,845) (700,665) (709,783)
Share of results of JV (43) (43) (43) (43)
Operating income (6,639) 16,130 21,378 36,705
Tax (708) (4,250) (4,540) (4,663)
Profit after tax (7,347) 11,880 16,838 32,042
Attributable to:
Unitholders 16,696 37,035 41,577 50,753
NCI (24,043) (25,154) (24,739) (18,711)
EBITDA 232,912 249,782 250,580 262,854
Distributable cash flows 161,005 130,969 154,656 163,082
Total distributions 139,251 143,948 143,948 143,948
Payout ratio 86% 110% 93% 88%
Balance sheet
Current assets 641,188 613,188 600,108 614,964
Non-current assets 3,861,841 3,747,675 3,624,339 3,490,777
Total assets 4,503,029 4,360,864 4,224,447 4,105,742
Current liabilities 232,048 235,081 237,526 242,479
Non-current liabilities 2,697,173 2,686,594 2,677,394 2,668,194
Total liabilities 2,929,221 2,921,675 2,914,920 2,910,673
Minority interest 256,644 228,429 200,629 178,856
Equity 1,573,808 1,439,188 1,309,526 1,195,068
Cash flow statement
Net profit (25,638) 16,087 21,335 36,662
Operating CF before working capital changes 240,982 234,700 238,779 250,485
Changes in working capital (48,654) (77,471) (81,180) (80,022)
Net cash generated from operating activities 192,328 157,229 157,599 170,463
Net cash used in investing activities (300,958) (29,091) (17,000) (4,000)
Net cash provided by financing activities 41,009 (157,079) (155,700) (155,700)
Net increase in cash and cash equivalents (67,621) (28,941) (15,101) 10,763
Cash and cash equivalents at beginning of the period 271,937 203,759 174,818 159,717
Effect of currency translations of cash and cash equivalents (557) - - -
Cash and cash equivalents at end of the period (Cash flow) 203,759 174,818 159,717 170,480
NB: Year ending 31 Dec. Pro forma assuming acquisition and restructuring had occurred before 1 Jan 2014.
Adjusted EBITDA means reported EBITDA plus reduction in concession receivable and excluding non-
recurring expenses.
Source: Company data, Credit Suisse estimates.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / C
ITY SP) 5
Figure 6: Valuation comparison Ticker Company Price Rating TP Up/Dn Mkt Cap Yield ROE (%) P/B Debt/ 6M ADT Tot. Assets (S$) (S$) % (S$mn) T+1 T+2 T+3 T+1 (x) Asset (%) (S$) (S$ mn)KIT SP Keppel Infrastructure Trust 0.52 O 0.57 10 2,006 7.2 7.2 7.2 2.9 1.7 40% 1,091,923 4,503 Retail 5.8 6.0 6.1 5.6 1.0 30%CT SP CapitaMall Trust 2.05 O 2.36 15 7,100 5.4 5.7 6.0 6.3 1.2 25% 19,914,540 9,858MCT SP Mapletree Comm. Trust 1.39 N 1.62 17 2,929 5.9 5.9 6.0 6.1 1.2 38% 2,903,576 4,945SPHREIT SP SPH REIT 1.02 N 1.10 8 2,580 5.3 5.4 5.5 4.7 1.1 24% 1,192,349 3,268MAGIC SP Mapletree Greater China 0.99 NR n.a. n.a. 2,705 7.1 7.3 7.3 4.7 1.0 36% 5,428,117 4,090FRT SP Fortune REIT 8.31 NR n.a. n.a. 2,774 5.5 5.7 5.9 4.2 0.7 29% 2,251,789 2,522FCT SP Frasers Centrepoint Trust 2.04 O 2.25 10 1,870 5.8 5.9 6.0 5.9 1.1 29% 2,806,242 2,947 Office 6.6 6.8 6.5 5.2 0.9 31% CCT SP CapitaCommercial Trust 1.43 U 1.43 0 4,202 6.0 6.2 6.4 4.5 1.0 18% 15,994,100 6,521SUN SP Suntec REIT 1.68 U 1.54 -8 4,214 5.8 5.9 6.1 5.0 0.8 34% 12,941,590 8,602KREIT SP Keppel REIT 1.07 N 1.15 7 3,422 6.7 6.6 6.6 3.8 0.9 36% 6,736,670 7,329 Industrial 7.5 7.7 7.9 7.4 1.1 33% AREIT SP Ascendas REIT 2.42 N 2.59 7 5,827 6.3 6.6 6.8 7.1 1.2 30% 24,508,540 7,932MLT SP Mapletree Logistics Trust 1.09 O 1.29 18 2,699 6.8 7.1 7.3 8.7 1.2 33% 4,095,887 4,593MINT SP Mapletree Industrial Trust 1.54 O 1.74 13 2,703 7.0 7.4 7.7 7.7 1.2 34% 4,901,207 3,302 DC 6.1 6.5 6.5 7.7 1.2 29% KDCREIT SP Keppel DC REIT 1.09 O 1.16 7 958 6.1 6.5 6.5 7.7 1.2 29% 2,344,957 1,096 Hospitality 7.1 7.2 7.2 5.6 0.9 32% ART SP Ascott Residence Trust 1.27 N 1.37 8 1,956 6.2 6.5 6.5 4.4 0.9 37% 2,025,496 4,122CDREIT SP CDL Hospitality Trust 1.56 N 1.74 12 1,535 6.8 6.9 7.1 6.4 1.0 30% 2,403,021 2,450OUEHT SP OUE Hospitality Trust 0.91 O 1.10 21 1,210 7.8 7.8 7.8 6.8 1.1 32% 1,143,252 1,796 Healthcare 5.9 5.8 69.7 7.5 1.5 31% PREIT SP ParkwayLife REIT 2.41 NR n.a. n.a. 1,458 5.4 5.0 132.6 7.0 1.5 30% 1,579,108 1,669FIRT SP First REIT 1.36 NR n.a. n.a. 1,014 6.4 6.5 6.8 8.0 1.5 33% 1,016,569 1,212 SG Business Trusts 8.2 8.9 9.5 6.7 1.1 29% HPHT SP Hutchison Port Holdings Trust 4.61 U 4.57 -1 7,125 7.5 8.7 9.1 3.9 1.1 29% 12,375,020 19,815APTT SP Asian Pay Television Trust 0.83 NR n.a. n.a. 1,185 9.8 9.8 9.9 6.4 1.0 43% 2,077,596 2,489 Asian Infra Trusts 5.6 7.0 7.2 11.0 2.4 27% 6823 HK Hkt Trust & Hkt Ltd. 9.56 N 11.00 15 12,833 6.0 7.0 7.5 11.1 2.1 46% 70,874,340 15,344TRUEIF TB True Telecom 12.70 O 13.60 7 2,885 7.1 7.3 7.4 6.8 1.0 0% 79,977,280 2,957BTSGIF TB Bts Rail Mass Transit 10.30 N 11.15 8 2,332 7.3 7.9 n.a. 6.8 0.9 0% 31,571,710 2,535 Australian Infra Trusts 6.1 6.3 6.5 16.5 3.9 59% APA AU Apa Group 9.07 U 8.10 -11 10,128 4.1 4.3 4.6 5.7 2.8 66% 27,509,090 9,369AST AU Ausnet Group 1.38 N 1.45 5 4,843 6.2 6.3 6.4 49.0 9.1 62% 8,657,181 12,358DUE AU Duet Group 2.21 N 2.35 7 4,527 7.9 8.2 8.4 3.2 2.0 74% 18,188,700 10,396SKI AU Spark Infrastructure Group 1.94 O 2.30 19 2,851 6.2 6.4 6.7 8.3 1.6 33% 11,893,350 3,429Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM, NC = NOT COVERED. Source: Company data, IBES estimates, Credit Suisse estimates for covered companies
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 6
Largest Singapore infrastructure business trust Diversified portfolio of core infrastructure assets
Created through the combination of Keppel Infrastructure Trust (KIT) and Cityspring
Investment Trust (CIT), as well as the acquisition of a 51% stake in Keppel Merlimau
Cogen (KMC), the enlarged Keppel Infrastructure Trust (Enlarged Trust) is the largest
Singapore infrastructure-focused business trust with total assets in excess of S$4 bn. The
portfolio of assets include:
KIT's portfolio
■ Senoko Waste-to-Energy Plant, the only incineration plant outside of Tuas, servicing
the eastern, northern and central areas of Singapore.
■ Keppel Seghers Tuas Waste-to-Energy Plant, the newest of the four waste
incineration plants currently operating in Singapore.
■ Ulu Pandan NEWater Plant, the second largest NEWater plant in Singapore.
■ 51% stake in KMC, a 1,300 MW power plant in Singapore.
CIT's portfolio
■ City Gas, the sole producer and retailer of town gas in Singapore.
■ SingSpring, Singapore's first large-scale seawater desalination plant.
■ Basslink, the only electricity interconnector between Tasmania and mainland
Australia.
■ CityNet, trustee-manager of Netlink Trust, which owns, installs, operates and
maintains the fibre network for Singapore's Next Generation Nationwide Broadband
Network.
■ DataCentre One, an uptime Institute tier-3 datacentre (completion expected in 1Q16).
Figure 7: Portfolio of assets of the Enlarged Trust
Source: Company data
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 7
Benefits from Keppel sponsorship
Keppel Infrastructure (KI) is the sponsor to the Enlarged Trust with Keppel Infrastructure
Fund Management (KIFM) as the trustee-manager. KI has an established track record of
developing, owning and operating infrastructure assets and will be able to support KIT in
its growth strategies. In our view, KIT could benefit from KI's sponsorship through its
expertise in sourcing for acquisitions, operational expertise in managing assets, as well as
through potential co-investment opportunities or Right of First Refusal to acquire assets
developed by KI.
Acquisition of core infrastructure assets with long-term cash flows
KIT aims to provide unitholders with long-term, regular and predictable distributions by
pursuing investments that exhibit the following characteristics:
■ Long-term, regular and/or predictable cash flows.
■ Long-term contracts or concessions/customer stability.
■ Creditworthy or reputable off-takers.
■ Diversification of asset class risks.
■ Jurisdictions with well-developed legal framework.
Figure 8: Summary of assets of the Enlarged Trust
Asset Type of asset Location Age (years) Design
capacity
Contracted
capacity
Concession
expiry
Counterparty
(offtaker)
KMC Gas-fired power plant Singapore ~ 4* 1,300 MW n.a.
2030, with
option for 10Y
extension
Keppel
Electric
Senoko WTE Waste incineration plant Singapore 23 2,400 t/day 2,100 t/day 2024 NEA
Tuas DBOO Waste incineration plant Singapore 6 888 t/day 800 t/day 2034 NEA
Ulu Pandan NEWater plant Singapore 8 148,000
m3/ day
148,000
m3/ day
2027 PUB
Singspring Seawater desalination
plant Singapore 9
136,380
m3/ day
136,380
m3/ day
2025, with
possibility of
extension
PUB
City Gas Town gas supplier Singapore >100 1.6 mn
m3/ day
n.a. n.a. Diversified
client base
Basslink Electricity interconnector Australia 8 n.a. n.a.
2031, with
option for 15Y
extension
Hydro
Tasmania
DataCentre One Data centre Singapore
To be
completed in
1Q16
N.A. N.A.
20 years from
completion,
with option for 8
year extension
1-Net
NB: Excludes CityNet where Keppel Infrastructure Trust acts as the trustee-manager. * Weighted average age
Source: Company data as of March 2015
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 8
Most of KIT's assets have long-term concession agreements of between 9.5 and 20 years
with creditworthy counterparties such as government-linked entities. This is generally
longer than the weighted average lease expiry of S-REITs.
Figure 9: Asset maturity profile of Enlarged Trust Figure 10: S-REITs WALE
2015 2020 2025 2030 2035 2040 2045 2050
CityNet
Tuas DBOO
Ulu Pandan
Senoko Plant
Singspring
City Gas
Datacentre One
Basslink
KMC
Existing contract Existing contract extension option
n.a.
6.6
5.5
3.42.52.42.12.1
1.6
7.9
6.0
3.53.1
7.5
4.54.34.24.03.83.63.33.12.6
11.2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
CR
CT
SG
RE
IT
LMR
T
MA
GIC
SP
H R
EIT
MC
T
CM
T
FC
T
CC
T
Kep
RE
IT
FC
OT
OU
EC
T
Kep
DC
RE
IT
Cac
he
MLT
Cam
brid
ge
SB
RE
IT
AR
EIT
Viv
a
AA
RE
IT
MIN
T
Sab
ana
Firs
t RE
IT
Retail Office DC Industrial Healthcare
Source: Company data Source: Company data, Credit Suisse estimates
Diversified portfolio across infrastructure assets
The enlarged KIT has assets in the power generation, gas retailing, electricity transmission,
water and wastewater treatment, as well as waste management segments. Keppel
Merlimau Cogen (KMC) is the largest asset of the Enlarged Trust, representing 43% of
total assets and 18% of adjusted EBITDA in CY2014. Basslink is the second largest asset,
representing 25% of total assets and 19% of adjusted EBITDA in CY2014.
Figure 11: Total assets by segment Figure 12: Adjusted EBITDA by segment
Power generation
43%
Gas retailing12%
Electricity transmission
25%
Water and wastewater treatment
7%
Waste management
13%
Power generation
18%
Water and wastewater treatment
8%
Waste management
18%
NCI20%
Gas retailing17%
Electricity transmission
19%
NB: Based on KIT and CIT's financial statements as at 31 December
2014 and KMC enterprise value of S$1,700 mn. Excludes total assets
attributable to corporate segment
Source: Company data
NB: Adjusted EBITDA means reported EBITDA plus reduction in
concession receivable and excluding non-recurring expenses.
Excludes trust/corporate expenses and assume restructuring
implemented on 1 January 2014.
Source: Company data
Keppel Merlimau Cogen Plant
Keppel Merlimau Cogen Plant is a gas-to-power project with a design life of approximately
25 years, with a generation licence of 30 years from 2003. It is located at 201 Jurong
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 9
Island Highway, Singapore 627805 and the land lease expires in 2035, with an option to
extend by 30 years.
Prior to the acquisition by Keppel Infrastructure Trust, the Keppel Merlimau Cogen Plant
was wholly owned by Keppel Energy and was in operation since 2007 with an initial
generation capacity of 500 MW. In 2013, the generation capacity was expanded by 800
MW to 1,300 MW and is fuelled by both piped natural gas and liquefied natural gas (LNG)
supplied from the Jurong Island LNG terminal.
Figure 13: KMC—summary of asset details
Details Combined cycle gas turbine generation facility with a
licensed generation capacity of approximately 1,300 MW
Address 201 Jurong Island Highway, Singapore 627805
Land title Leasehold (expiring in 2035, with the option to extend
another 30 years)
Completion Phase I: April 2007 (capacity of 500 MW)
Phase II: March and July 2013 (additional capacity
of 400 MW each)
Design life 25 years
Weighted average age ~4 years
Generation licence 30 years from 2003
Appraised value (S$ mn) EV 1,700
Concession Capacity Tolling Agreement (CTA): 15 years, with option
to extend another ten years. Expires in 2030
Toller Keppel Electric
O&M operator KMC O&M, an indirect, wholly-owned subsidiary of KI
Source: Company data as at March 2015
Based on the acquisition cost of S$1.7 bn (US$1.32 bn), the implied EV/capacity ratio of
the KMC acquisition is 1.0x, which is in line with the median EV/capacity ratio of precedent
transactions as shown in Figure 14.
Figure 14: Implied valuation ratios of KMC precedent transactions
Date Acquiror Target Fuel type Stake
acquired
(%)
Gross
capacity
(MW)
Gas-fired
capacity
(MW)
Transacti
on value
(US$ mn)
Implied
100% EV
(US$ mn)
EV/
capacity
(US$
mn/MW)
EV/Gas-
fired
capacity
(US$
mn/MW)
EV/LTM
EBITDA
(x)
Mar-13 FPM Power GMR Energy Gas 70% 800 800 537 1,582 1.98 1.98 n.a.
Dec-08 YTL Power PowerSeraya Mix 100% 3,100 1490* 2,340 2,471 0.80 1.66 10.7
Sep-08 Lion Power Senoko Power Mix 100% 3,300 2,050 2,570 2,797 0.85 1.36 16.2
Mar-08 China Huaneng Tuas Power Mix 100% 2,670 1,470 3,056 3,108 1.16 2.11 13.0
Mean 1.20 1.78 13.3
Median 1.01 1.82 13.0
* Includes gas-fired capacity under construction of 758 MW at the transaction announcement. Source: Company data, SDC
Senoko WTE Plant
The Senoko Plant is one of four waste incineration plants currently operating in Singapore,
located at 30 Attap Valley, Singapore 759907. It was commissioned in 1992 and equipped
with six incineration-boiler units and two condensing turbine-generators with a power
generation capacity of 2 x 28 MW, occupying a land area of 7.5 ha.
On 31 August 2009, Senoko Plant was acquired by the Senoko Trust for S$454 mn, and
commenced operations under the Senoko Trust in accordance with the Senoko ISA.
Under the Senoko ISA, the contracted incineration capacity of Senoko Plant is 2,100 t/day
(based on a net calorific value of 9,000 kJ/kg) for 15 years starting from 1 September 2009.
The Senoko Trustee is entitled to receive monthly payments from the NEA, comprising of
fixed payments for the provision of incineration capacity and payable in full if the available
incineration capacity of Senoko Plant is greater than or equal to 2,100 t/day, as well as
variable payments comprising of an O&M component, an electricity generation incentive
payment, and a reimbursement for energy market charges payable.
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Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 10
Figure 15: Senoko WTE: Summary of asset details
Details A waste incineration plant equipped with six incineration-
boiler units and two condensing turbine-generators offering
a power generation capacity of 2 x 28 MW
Address 30 Attap Valley, Singapore 759907
Land area 7.5 ha
Completion 1992, with flue gas treatment upgrade in June 2012
Age 23
Designed capacity 2,400 t/day
Contracted capacity 2,100 t/day (based on a net calorific value of 9,000 kJ/kg)
Concession Senoko ISA: 15 years starting from 1 September 2009.
Expires in 2024
Counterparty National Environment Agency
O&M operator Keppel Seghers
Source: Company data as at March 2015
Tuas DBOO Plant
The Tuas DBOO Plant is one of four waste incineration plants currently operating in
Singapore, located at 96 Tuas South Avenue 3, Singapore 637366. It is operational since
October 2009 and equipped with two incineration-boiler units and one condensing turbine-
generator with a power generation capacity of 22 MW.
The Tuas DBOO Trustee owns and operates the Tuas DBOO Plant under the Tuas DBOO
ISA. Under the Tuas DBOO ISA, the contracted incineration capacity of Tuas DBOO Plant
is 800 t/day (based on a net calorific value of 9,000 kJ/kg) for 25 years starting from 30
October 2009.
The Tuas DBOO Trustee is entitled to receive monthly payments from NEA, comprising of
fixed payments for the provision of incineration capacity payable in full if the available
incineration capacity of Tuas DBOO Plant is greater than or equal to 800 t/day, fixed
electricity generation payments payable for making available the electricity generation
services of Tuas DBOO Plant, as well as variable payments comprising of an O&M
component, an electricity generation incentive, and a reimbursement for energy market
charges payable.
Figure 16: Tuas DBOO: Summary of asset details
Details A waste incineration plant equipped with two incineration-
boiler units and one condensing turbine-generator offering
a power generation capacity of 22 MW
Address 96 Tuas South Avenue 3, Singapore 637366
Land area 1.6 ha
Completion 2009
Age 6
Designed capacity 888 t/day
Contracted capacity 800 t/day (based on a net calorific value of 9,000 kJ/kg)
Concession Tuas DBOO ISA: 25 years starting from 30 October 2009.
Expires in 2034
Counterparty National Environment Agency
O&M operator Keppel Seghers
Source: Company data as at March 2015
Ulu Pandan NEWater Plant
The Ulu Pandan Plant is one of the four operational NEWater plants in Singapore, located
at 61 Old Toh Tuck Road, Singapore 597656. It is operational since 2007.
The Ulu Pandan Trustee owns and operates the Ulu Pandan Plant under the NEWater
Agreement. Under the NEWater Agreement, the contracted warranted capacity of Ulu
Pandan Plant is 148,000 m3/day of NEWater for 20 years starting from 28 March 2007.
The Ulu Pandan Trustee is entitled to receive monthly payments from PUB, comprising of
fixed payments for the provision of production capacity payable in full if the available
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(KEPL.SI / CITY SP) 11
production capacity of Ulu Pandan Plant is greater than or equal to 148,000 m3/day, as well
as variable payments comprising of an O&M component and a power payment component.
Figure 17: Ulu Pandan: Summary of asset details
Details A NEWater plant featuring modular design, space saving
measures and energy saving features.
Address 61 Old Toh Tuck Road, Singapore 597656
Completion 2007
Age 8
Designed capacity 148,000 m3/day
Contracted capacity 148,000 m3/day
Concession NEWater Agreement: 20 years starting from 28 March
2007. Expires in 2027
Toller Public Utilities Board
O&M operator Keppel Seghers
Source: Company data as at March 2015
SingSpring Desalination Plant
The SingSpring Plant is the first large-scale seawater desalination plant in Singapore,
located at 90 SingSpring Desalination Plant Tuas South Avenue 1, Tuas, Singapore
637493. It commenced commercial operations in December 2005, occupying land leased
from JTC for a 30-year term expiring in 2034.
SingSpring owns and operates the SingSpring Plant under the Water Purchase
Agreement (WPA) for a 20-year term commencing in December 2005 and expiring in
December 2025. Under the WPA, SingSpring must make available the SingSpring Plant's
capacity, and supply water from the SingSpring Plant, to PUB only. The SingSpring Plant
is capable of supplying up to 136,380 m3 of desalinated potable water per day.
SingSpring is entitled to receive monthly payments from PUB, comprising of capacity
payments payable for the fixed costs in making the full water capacity of the SingSpring
Plant available to PUB, as well as output payments payable for the variable costs in
supplying water to PUB, depending on the volume of water supplied.
Figure 18: Singspring: Summary of asset details
Details A seawater desalination plant utilising advanced, cost and
energy-efficient reverse osmosis technology
Address 90 Singspring Desalination Plant Tuas South Avenue 1,
Tuas, Singapore 637493
Land title Leasehold (expiring in 2034)
Completion 2005
Age 9
Designed capacity 136,380 m3/day
Concession Water Purchase Agreement: 20 years from December
2005. Expires in 2025, with possibility of extension.
Toller Public Utilities Board
O&M operator Hyflux Engineering
Source: Company data as at March 2015
CityGas
CityGas is currently the sole producer and retailer of town gas in Singapore and the sole
user of the low-pressured piped town gas supply network in Singapore. CityGas is located
at 26 Senoko Avenue, Singapore 758312.
Senoko Gasworks, the production facility of town gas, has a capacity of 1.6 mn m3/day
with more than 700,000 customers located in Singapore. It holds the sole licence from
EMA to produce and retail town gas in Singapore and is regulated by EMA in respect to
such activities. Hence, any change in CityGas tariffs require approval from EMA. Tariffs for
town gas are determined via a tariff review process, taking into account the cost to
CityGas, such as fuel, transportation of gas, cost of production of gas, manpower and
after-sale services among others.
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(KEPL.SI / CITY SP) 12
Figure 19: CityGas: Summary of asset details
Details The sole producer and retailer of town gas and sole user
of low-pressure piped town gas supply network in
Singapore.
Address 26 Senoko Avenue, Singapore 758312
Designed capacity 1,600,000 m3/day
Number of customers >700,000
Gas supply Gas Purchase Agreement with GSPL and SEPL
Regulatory authority Sole licence from EMA to produce and retail town gas in
Singapore
Gas transportation PowerGas
Source: Company data as at March 2015
Basslink
Basslink owns and operates a 370 km high voltage electricity interconnector between the
states of Victoria and Tasmania in Australia. It began commercial operations in April 2006,
allowing Tasmania to participate in the National Energy Market (NEM) Australia and
provides power stability.
In September 2007, Basslink was acquired by CitySpring for S$1,504 mn, and now
operates under the Basslink Services Agreement (BSA). The BSA is operating for a term
of 25 years starting from 28 April 2006 with the option of a 15-year extension.
Basslink is entitled to receive payments from Hydro Tasmania, comprising of:
■ Facility fees payable in full if Basslink's availability is equal to or greater than 97%.
■ Incentive availability adjustment paid by Hydro Tasmania to Basslink if the interconnector
is fully available during periods when Victorian electricity is at its highest.
■ The Floating Interest Rate Delta (FIRD), which is a 25-year interest rate hedge
provided by Hydro Tasmania.
■ The Commercial Risk Sharing Mechanism based on differences between high and low
Victorian electricity pool prices, subject to a limit of +25% and -20% of the facility fee.
Figure 20: Basslink: Summary of asset details
Details Operates the Basslink Interconnector, a 370 km 400 kV
DC high voltage direct current monopole electricity
interconnector between the electricity grids of the States of
Victoria and Tasmania in Australia.
Address Level 3, 410 Collins Street
Melbourne VIC 3000
Age 8
Concession Basslink Services Agreement: 25 years, with the option to
extend another 15 years. Expires in 2031
Toller Hydro Tasmania
O&M operator BPL
Source: Company data as at March 2015
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Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 13
Proxy to rising infrastructure spending in Singapore According to the Singapore Budget 2015, total infrastructure spending will increase to
SG$20 bn (4.8% of GDP) in FY2015, from SG$14 bn (3.6% of GDP) in FY2014 (see
Figure 21 and Figure 22), and to SG$30 bn by the end of the decade. While part of this
increase in infrastructure spending comes from higher spending on hospitals, public
transport and also the new Changi Airport, we also see investments in utilities
infrastructure projects such as Singapore's third desalination plant, which is scheduled to
be completed in 2017.
Figure 21: Singapore government's infrastructure
spending (% of GDP)
Figure 22: Public investment activity should provide some support for growth
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY20E
Total Development Health Transport Others
Government's estimate
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Nominal Public GFCF %yoy
Govt Development Expenditure
Source: Ministry of Finance, Credit Suisse estimates Source: CEIC, Ministry of Finance, Credit Suisse
Singapore power market
Power generation capacity in Singapore increased by 2.7 GW or 27% in 2013–14
following the completion of Singapore’s LNG terminal in 2Q13 which increased gas supply.
Figure 23: Planned installed capacity growth in 2013–14
Generation Company Installed
Capacity (MW)
Expected
commission
date
Update
Keppel Merlimau Cogen 800 Mid 2013 Commenced operations June 2013
ExxonMobil 220 Mid 2013
PacificLight Power 800 End 2013 Commenced operations in 1Q14
Tuas Power Generation 400 End 2013 Commenced operations in 2Q14
Sembcorp Cogen 400 End 2013 Commenced operations in August 2014 following delay due to lack of grid connection
Soxal 5 4Q14
SLNG 15.6 4Q14
CGNPC 9.9 4Q14
Biofuel Industries 9.9 4Q14
Source: Energy Market Authority, company data, Credit Suisse
Based on data from Energy Market Authority (EMA), capacity addition is expected to slow
down in 2015–16, with only 563 MW of capacity growth expected. With the exception of
Hyflux’s Tuaspring plant, which is likely to only commence operations in 2016, the
remaining additions are mainly embedded generation by industrial users.
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(KEPL.SI / CITY SP) 14
Figure 24: Project commercial operating date (COD) of the new capacities (2015–16)
Company Plant type Capacity change (MW) Period
Shell Embedded generation 67.8 Apr-15
SRC Embedded generation 42 1Q15
SRC Embedded generation 42 2Q15
Tuaspring CCGT 411 2Q16
Total 563
Source: Energy Market Authority, The Lantau Group
Reserve margin likely to peak in 2014
We base the Credit Suisse power generation model on the following:
■ Historical generation capacity is based on data from the Energy Market Authority,
while additions are based on announced completion dates of planned expansions. We
assume no further capacity changes from 2017 onwards.
■ Forecast peak demand is driven by Singapore GDP growth, which Credit Suisse
expects to be 3.2% in 2015 and 4.7% in 2016. Thereafter, GDP is expected to grow by
3.5% p.a., in line with the Singapore government’s planning parameter of 3–4%.
Figure 25 shows the annual installed capacity in Singapore from 2007–20. We believe that
the reserve margin (peak demand minus installed capacity as a percentage of installed
capacity) reached a low of about 34% in 2011, leading to higher electricity prices during this
period. However, with installed capacity growing by 19% in 2013 and 7% in 2014, the reserve
margin increased to 46%, above the 2007 level. With demand growth expected to exceed
supply growth from 2015E, we expect the reserve margin to decline to 44% in 2015E.
Figure 25: Credit Suisse power generation model suggests reserve margin would decline
in 2015E
0%
10%
20%
30%
40%
50%
60%
70%
0
2000
4000
6000
8000
10000
12000
14000
16000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Generation Capacity - LHS Peak demand - LHS Reserve Margin - RHS
(MW)
Source: Energy Market Authority, company data, Credit Suisse estimates
Average USEP declined by 21% YoY in 2014
The expected increase in capacity has led to a decrease in the Uniform Singapore
Electricity Price (USEP) since 2013. USEP is the weighted average price in the wholesale
electricity market, and is determined through the interaction of offers made by generation
companies and consumer demand. The average USEP declined 21% from S$173/MWh in
2013 to S$137/MWh in 2014, and further to S$96/MWh YTD. However, we note that
Keppel Merlimau Cogen's tolling contract with Keppel Electric mitigates market risks
relating to potential further decline in power spreads.
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(KEPL.SI / CITY SP) 15
Figure 26: Uniform Singapore Electricity Price (USEP)—S$/MWh
0
50
100
150
200
250
300
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Apr
-14
Jul-1
4
Oct
-14
Jan-
15
Apr
-15
Uniform Singapore Electricity Price ($/MWh) (LHS)
Source: Energy Market Company
Singapore water market
In the water resourcing strategy announced on 28 June 2010, PUB (Singapore’s national
water agency) laid out plans to triple the country’s water reuse capacity and to increase the
desalination capacity eight-fold over the next 50 years. This will allow Singapore to become
self-sufficient in meeting its projected water demand of 760 MiGD (3.45 mn m3/day) by the
time its long-term water purchase agreement with Malaysia expires in 2061.
Figure 27: Overview of the Singapore water market
1,730
2,076
3,460
273
830
1,730
136
519
1,038
1,321
727 692
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2010 2020 2060
Total Water Demand NEWater Capacity Desalinated Water Capacity Water Catchment + Import Water
MLD
Source: PUB
NEWater Plants
According to PUB, the volume of water generated through reuse (NEWater) is expected to
triple by 2060 to meet 50% of Singapore’s future water demand. Various measures have
been planned to meet this target:
■ The Changi Water Reclamation Plant and the Changi NEWater Plant will be expanded
to meet the growing demand.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 16
■ The sixth NEWater Plant will be built at Tuas Water Reclamation Plant when Phase 2
of the Deep Tunnel Sewerage System is completed.
■ There are also plans to progressively ramp up the capacity of the future Tuas Water
Reclamation Plant and the Tuas NEWater Plant to meet demand.
Desalination
PUB plans to increase its desalination capacity eight-fold from 2010 to 1 mn cu m/day by
2060. The capacity increase is likely to meet up to 25% of Singapore projected water
demand. At least five coastal sites have been identified for future desalination plants.
Figure 28: Water source for Singapore—2014 Figure 29: Water source for Singapore—2060
Desalination25%
NEWater30%
Imported water & catchment water
45% 1.5 mil m3/dayTotal demand
(2014)
Desalination25%
NEWater55%
Catchment water*20%
3.4 mil m3/dayTotal demand
(2060)
Source: PUB * Assuming water supply agreement with Malaysia is not renewed
Source: PUB
Singapore WTE market
Due to space constraints in land-scarce Singapore, the National Environment Agency
(NEA) adopted waste-to-energy (WTE) incineration in the 1970s as an alternative method
to landfills for solid waste disposal as it is able to reduce waste volume by 90%. Between
1970 and 2014, Singapore's solid waste output increased from 1,260 t/day to 8,338 t/day.
The Ulu Pandan Incineration Plant, Singapore's first WTE plant, opened in 1979 and was
subsequently decommissioned in 2009. There are currently four operating WTE plants in
Singapore with two more in the pipeline, expected to be commissioned in 2016 and 2018.
Two of the plants, Senoko WTE and Tuas DBOO, operate on a public-private-partnership
(PPP) approach, with Keppel Seghers operating as the private operator.
Figure 30: WTE plants in Singapore
Facility Year commissioned Capacity (t/day) Expected lifespan
Tuas 1986 1,700 2018
Senoko WTE 1992 2,100 2024
Tuas South 2000 3,000 2030
Tuas DBOO 2009 800 2034
Sembcorp WTE 2016 1,000
Proposed 6th plant 2018
Source: Company data, Credit Suisse estimates
Total waste incinerated has been growing by 2.5% p.a. on average since 2005, and
represents 36% of total waste generated in 2013.
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(KEPL.SI / CITY SP) 17
Figure 31: Total waste incineration growing consistently
since 2005
Figure 32: Waste incineration represents 36% of total
waste generated in 2013 (mn tpa)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
2005 2006 2007 2008 2009 2010 2011 2012 2013
Total waste incinerated (mn tonnes/year) - LHS YoY Change - RHS
Waste recycled, 4.83
Waste incinerated , 2.82
Waste landfilled, 0.20
Source: NEA, Credit Suisse estimates Source: NEA, Credit Suisse estimates
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 18
Growth drivers from acquisitions and asset injection Basslink recovery
Basslink's primary source of revenue is a facility fee paid monthly by Hydro Tasmania (HT)
for the operation of the interconnector. The facility fee is based on the interconnector's
availability and is payable in full if the cumulative availability, based on the calendar year,
is equal to or greater than 97%. Basslink operates under the Basslink Services Agreement
(BSA) with HT. The BSA includes a Commercial Risk Sharing Mechanism (CRSM) to
share the market risk associated with participating in the National Electricity Market of
Australia between HT and Basslink. The CRSM payments are based on the differences
between the high and low spreads of the Victoria electricity pool prices, subject to a cap of
+25% (i.e. when payment is made to Basslink by HT) and a floor of -20% (i.e. when
payment from Basslink is made to HT) to the unadjusted facility fee.
The CRSM is meant to be neutral to both parties in the long run, and is due for review in
April 2016 if aggregate cumulative negative payments over the preceding five years
exceeds a certain percentage of the base fee. As negative CRSM payments ranged
between 15–20% of base fee over the past five financial years, we believe that a review
may be triggered. In the event that both parties cannot agree, maximum negative
payments will adjust to 12.5% of base fee.
Figure 33: Negative CRSM payments by Basslink to HT since 2010
-1
-16.7
-15.5
-11
-13.4
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
FY10 FY11 FY12 FY13 FY14
CRSM (A$mn)
Source: Company data
Refinancing of Basslink borrowing
In November 2014, Basslink refinanced its outstanding bonds of A$486 mn due August
2015, A$48.8 mn inflation-indexed bonds due August 2017 and A$232 mn inflation-
indexed bonds due August 2019 with an A$717 mn five-year senior, secured loan facility,
provided by a group of nine banks. As part of the refinancing, CIT will contribute an equity
injection of A$50 mn. Previously, Cityspring had announced that no cash distribution will
be received from Basslink until the financing has been completed. The refinancing facility
enables Basslink to pay down loans to reduce interest expense and make distributions if
certain coverage ratios are met. KIT could also use cash flows to pay down loans so that
Basslink will be able to make larger distributions to replace those of expiring concessions.
03 August 2015
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(KEPL.SI / CITY SP) 19
CityGas growth
Through its predecessor entities, CityGas has had a long track record, having grown from
a gas producer and retailer of town gas to a retailer of both town gas and natural gas with
a customer base of about 700,000 customers in Singapore as at March 2015. With a
diverse customer base across the residential, commercial and industrial segment, the total
gas volume sold by CityGas has increased by 7.1% on average since FY09. This was
driven partially by an increase in number of customers from 622,000 in FY10 to 700,000.
Figure 34: Gas volume sold by CityGas (mn kWh) Figure 35: Total town gas sales to domestic and non-
domestic customers
1,629 1,767
1,699
1,944 2,066 2,082
2,421
-5%
0%
5%
10%
15%
20%
-
500
1,000
1,500
2,000
2,500
FY08 FY09 FY10 FY11 FY12 FY13 FY14
Gas volume sold -LHS YoY growth - RHS
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0
50
100
150
200
250
300
350
400
450
500
1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14
Domestic consumers (mn units) Non-domestic consumers (mn units) YoY growth - RHS
Source: Company data, Credit Suisse estimates Source: Energy Market Authority, Credit Suisse estimates
Datacentre One
In June 2014, Cityspring and Shimizu established a new joint venture company,
DataCentre One (DC One), to develop and lease a data centre in Singapore. Cityspring
holds a 51% share in DC One, with the remaining 49% share held by Shimizu. The data
centre will be located at 2 Marsiling Lane on a land area of about 8,538 sq m. The building
will have four floors of data centre halls and one floor of office and ancillary space.
Construction commenced in 4Q14 and is expected to be completed by 1Q16.
1-Net, a wholly owned subsidiary of Mediacorp, signed a lease for the datacentre for a
period of 20 years, which may be renewed for approximately eight years at 1-Net's option.
The fees for the initial lease term of 20 years is approximately S$17 mn to S$21 mn
yearly. 1-Net is entitled to certain discounts on the fees during the first two years of the
lease term, and such fees after discount during the first two years will be approximately
S$11 mn to S$21 mn yearly.
Positive demand-supply dynamics for data centres in Singapore
A data centre is a building that houses information technology and telecommunication
systems. There is requirement for very high reliability and network availability, and the
building typically provides back-up power sources, redundant telecommunication
connections, strict building ambient controls and stringent security configuration.
The increased penetration of internet-enabled devices such as smartphones and tablets,
and the growing trend of digitalisation have led to an increase in growth in data creation
globally. BroadGroup expects internet-enabled devices and global internet users to
continue growing at a strong pace, reporting 2013–18F CAGR of 26.6% and 17.2% to 18.2
bn and 5.3 bn, respectively, all of which should continue to support the growth in data
creation/usage.
The increased compliance and regulatory requirements across various industries like the
banking and finance sectors, as well as healthcare industries, has helped boost demand
for data centre facilities. Increasingly, businesses are more open to the idea of outsourcing
their requirements to data centres, allowing them to focus on their core competencies and,
at the same time, not having to incur the upfront costs required for the data centre. With
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 20
the growing focus on capital rationalisation and progression towards the 'asset light'
business model, this will continue to underpin demand for outsourced data centre space.
Figure 36: Forecast proportion of outsourced data centre
space by region (sq ft)
Figure 37: Proportion of third-party data centres (sq ft) in
2013
3.0
12.1
16.3 21.2
27.1
34.2
38.5
1.0
21.1 24.0
28.2
33.3
38.1
42.2
1.0
29.4 33.0
38.4
43.0
48.0
52.5
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2007 2013 2014F 2015F 2016F 2017F 2018F
Asia Pacific Western Europe US
%
38.3%
34.2%
24.2%
19.2%17.1%
9.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Singapore Australia UK Netherlands Ireland Malaysia
Source: BroadGroup Source: BroadGroup
The data centre sub-sector requires significant upfront costs and know-how, which may deter
or make it harder for new entrants. Track record is also an important element given the
mission-critical nature of the data centre business. It is also challenging to obtain the
appropriate site given considerations such as access to sufficient power and fibre connectivity
and generally low exposure to natural disasters, yet close enough to the businesses.
Overall utilisation in Singapore remains relatively high at about 85%-levels—higher than
many other markets, and BroadGroup forecasts utilisation rates will inch up to 92.1% in
2018F. Demand is expected mainly from financial institutions. As a result, rents are
expected to rise at a 4.9% CAGR over 2013–18F.
Figure 38: Demand, supply and utilisation in Singapore Figure 39: Wholesale co-location pricing in Singapore
(US$ per kW and sq ft)
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
90.0%
95.0%
100.0%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2007A 2009A 2011A 2013A 2015F 2017F
Incremental Space (sq ft) Absorption (sq ft) Utilisation %
sq ftUtilisation
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
2007A 2009A 2011A 2013A 2015F 2017F
Price per kW Price per sq ft
US$ per kW US$ psf
CAGR 2007-13 in price per kW = 2.6%CAGR 2007-13 in price psf = 5.3%
CAGR 2013-18F in price per kW = 4.8%CAGR 2013-18F in price psf = 4.9%
Source: BroadGroup Source: BroadGroup
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 21
Non-organic growth
Pipeline from sponsor
The sponsor, Keppel Infrastructure, intends to support KIT by potentially warehousing
attractive greenfield projects until such projects achieve a more stable cash flow
generation capability and become suitable investments for KIT. This will facilitate the
creation of a pipeline of income-generation infrastructure projects for potential investment
by KIT. Keppel Infrastructure may also consider co-investing in assets with KIT.
KIT also has first rights over the remaining 49% of KMC, and the Right Of First Refusal
(ROFR) to acquire assets developed or incubated by Keppel Infrastructure. The pipeline of
projects include:
■ The Changi district cooling systems (DCS) plant, the first DCS plant in Singapore
since June 2000.
■ The Biopolis DCS plant, which is operational since July 2003.
■ The Mediapolis DCS plant, due for completion in 2015.
■ The Woodlands DCS plant, which is operational since July 2006.
Figure 40: ROFR assets
Name of plant Location Description Design capacity
Changi DCS Plant Changi Business Park,
Singapore
A district cooling system
wholly-owned by Keppel DHCS
37,000 refrigeration tonnes
(RT)
Biopolis DCS Plant Biopolis@one-north, Singapore A district cooling system
wholly-owned by Keppel DHCS
25,750 RT (expanding capacity
to almost 30,000 RT by 2015)
Mediapolis DCS Plant Mediapolis@one-north,
Singapore
A district cooling system
wholly-owned by Keppel DHCS
28,000 RT
Woodlands DCS Plant Woodlands Wafer Fab Park,
Singapore
A district cooling system
wholly-owned by Keppel DHCS
11,000 RT
Source: Company data
Scenario analysis on acquisition of the 49% stake in KMC
Keppel Infrastructure Trust has first rights over Keppel Energy’s KMC shares in the event
that Keppel Energy wishes to divest its remaining 49% interest in KMC. Assuming a
potential injection at the same transaction multiples as the initial 51% stake, with a
continuation of the tolling agreement with Keppel Electric, we estimate that this could raise
distributable cash flows by about S$43 mn p.a.
Third-party acquisitions
KIT would also evaluate third-party acquisitions that meet its investment criteria, with an
initial focus on existing energy, telecoms, waste and water sectors. These acquisitions are
likely to be in jurisdictions with well-developed legal frameworks, including Asia (Australia,
Japan, Korea, Singapore and Taiwan), as well as select EU countries.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 22
Gearing of 0.4x implies debt headroom for
acquisition
Following the combination with Cityspring Infrastructure Trust and acquisition of a 51%
stake in Keppel Merlimau Cogen financed by an equity fund raising, we estimate that
Keppel Infrastructure Trust will have a pro-forma net gearing of 0.40x in end-2015. This
would be slightly higher compared to S-REITS' average of 0.35x, but lower than other
Asian infrastructure trusts and Australian infrastructure companies. There is no leverage
limit on business trusts in Singapore, compared to S-REITS’ regulatory limit of 45%
(effective 1 January 2016) based on the recently released MAS consultation paper.
Figure 41: Gearing relative to S-REITs and comparable business trusts
0.45
0.39
0.38
0.38
0.37
0.37
0.36
0.36
0.36
0.35
0.35
0.34
0.34
0.33
0.33
0.32
0.32
0.31
0.31
0.31
0.31
0.30
0.30
0.30
0.30
0.29
0.29
0.29
0.27
0.25
0.24
0.18
0.43
0.40
0.33
0.29
0.27
0.14
0.61
0.46
0.74
0.66
0.62
0.33
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Viv
a
OU
EC
T
MC
T
Sab
ana
FC
OT
Asc
ott
MA
GIC
AH
T
Kep
RE
IT
Cam
brid
ge
SB
RE
IT
Sun
tec
MIN
T
Firs
t RE
IT
MLT
AA
RE
IT
OU
EH
T
LMR
T
Far
Eas
t
Fra
sers
HT
Cac
he
AR
EIT
CD
LHT
CR
CT
PLi
fe R
EIT
Kep
DC
RE
IT
FC
T
For
tune
SG
RE
IT
CM
T
SP
H R
EIT
CC
T
AP
TT
Enl
arge
d K
IT
Acc
ordi
a G
olf
HP
HT
Asc
enda
s In
dia
Rel
igar
e H
ealth
Hkb
n
HK
T T
rust
Due
t Gro
up
Apa
Gro
up
Aus
net G
roup
Spa
rk In
fra
SG REITS SG Business Trusts OtherAsianInfra
Trusts
Australian InfraTrusts
Net gearing Average
Source: Company data, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates
Keppel Infrastructure Trust currently has a blended average interest rate of 4–5%, based
on Singapore average interest rates of 2–3%, and Australian average interest rates of 6–
7%. Management intends to enter into interest rate hedging contracts to hedge 70–80% of
its interest rate exposure, which should mitigate any near-term impact of interest rate
spikes, giving the higher visibility of distributable income. About 67% of KIT’s borrowing is
currently hedged, and management aims to bring its total amount hedged to about 80%.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 23
Figure 42: Weighted average term to expiry is
approximately 4.5 years
Figure 43: Gearing headroom (S$ mn) assuming
different gearing limits
3.5
142.3178.0
742.5700.0
86.5
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
Nov-15- Senoko
WTE*
Aug-17- KIT
Corporate*
Feb-19- City Gas*
Nov-19- Basslink*
Jun-20- KMC*
Oct-24-Singspring
Maturity profile (S$ mn)
1688
351805
1358
2051
0
500
1000
1500
2000
2500
3000
3500
4000
0.40x FY15Eyear end net
gearing
0.45x 0.50x 0.55x 0.60x
* Will be refinanced upon maturity. Source: Company data Source: Company data, Credit Suisse estimates
Figure 44: Debt breakdown by maturity (as at 30 June
2015)
Figure 45: Debt breakdown by currency (as at 30 June
2015)
< 1 yr0.2%
3-5 yrs57.4%
> 5 yrs42.4%
SGD59.9%
AUD40.1%
Source: Company data Source: Company data
Capex requirements in near term
The total consideration cost for DataCentre One is approximately S$130 mn, to be funded
50:50 by equity financing and long-term debt financing. Keppel Infrastructure Trust will
provide equity financing pro-rata to its 51% shareholding in the JV. It is expected that the
debt financing will be in the form of long-term project finance loans. In our estimates, we
forecast a S$22.1 mn equity injection into the JV in 2015, which leads to lower
distributable cash flows.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 24
Initiate with OUTPERFORM DCF-derived target price of S$0.57
Our target price for Keppel Infrastructure Trust of S$0.57 is based on our DCF valuation.
Our DCF valuation uses detailed forecasts between over the existing contract life of the
assets, as well as over the extension period for contracts with options. We do not assign a
terminal value for all assets with the exception of CityGas. We also assume a cost of
equity of 6.25% derived based on a market risk premium of 6.5%, a risk-free rate of 3%
and beta of 0.5x, in line with peers.
Figure 46: Beta relative to S-REITs and comparable business trusts
0.87
0.87
0.77
0.69
0.68
0.67
0.65
0.64
0.63
0.61
0.60
0.59
0.59
0.59
0.57
0.56
0.56
0.56
0.55
0.48
0.48
0.47
0.47
0.46
0.46
0.45
0.45
0.43
0.43
0.41
0.40
0.40
0.85
0.53
0.52
0.45
0.40
0.49
0.46
0.42
0.35
1.13
0.93
0.77
0.72
0.00
0.20
0.40
0.60
0.80
1.00
1.20
CM
T
AR
EIT
MC
T
Sun
tec
Firs
t RE
IT
For
tune
CC
T
CR
CT
MLT
SG
RE
IT
FC
T
SP
H R
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MIN
T
CD
LHT
FC
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PLi
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Kep
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IT
Sab
ana
LMR
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RE
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Viv
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OU
EC
T
AA
RE
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SB
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MA
GIC
AH
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OU
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HT
HP
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AP
TT
HK
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Hkb
n
Bts
Rai
l
Tru
e T
elec
om
Apa
Gro
up
Aus
net G
roup
Spa
rk In
fra
Due
t Gro
up
SG REITS SG Business Trusts Other AsianInfra Trusts
Australian Infra
Source: Company data, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates
In Error! Reference source not found. we show a DCF sensitivity to beta and cost of
equity. This highlights that the current share price is pricing in a cost of equity of closer to
6.9%.
Figure 47: Our target price of S$0.57 is based on cost of equity of 6.25%
Beta Cost of equity Value per share (S$) Implied Yield
0.50 6.25% 0.57 (Target Price) 6.5%
0.50 6.3% 0.58 6.5%
0.54 6.5% 0.55 6.7%
0.56 6.6% 0.54 6.9%
0.58 6.8% 0.53 7.0%
0.60 6.9% 0.52 (Current Price) 7.2%
0.62 7.0% 0.51 7.3%
Source: Company data, Credit Suisse estimates
Yield comparison versus peers
Due to its long-term concession agreements and relatively more resilient asset class, we
have compared KIT to the top-ten REITs with the longest WALE. Our target price of
S$0.57 would imply a dividend yield of 6.5%, in line with the market cap weighted average
yield of 6.5% in 2016.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 25
Figure 48: Yield comparison versus peers
Company Market cap DPU yield (%)
(S$ mn) Dec-15 Dec-16
S-REITS
PREIT 1,458 5.4 5.0
CCT 4,202 6.0 6.2
SGREIT 1,865 6.0 6.4
KREIT 3,422 6.7 6.6
KDCREIT 958 6.1 6.5
FCT 1,870 5.8 5.9
MLT 2,699 6.8 7.1
CACHE 855 8.0 8.6
SBREIT 786 7.6 7.6
AREIT 5,827 6.3 6.6
Market cap weighted average 6.3 6.5
Source: Company data, the BLOOMBERG PROFESSIONAL™ service
Figure 49: S-REITs and comparable business trusts: Market cap versus T+2 yields
5.7 5.95.4
7.3
5.75.9
6.4
7.0
8.5
6.25.9
6.6
8.5
7.2
6.67.1
7.4
8.6
7.9 7.7
8.6
7.6
6.5 6.56.9
7.2
7.8 7.6
8.8
5.0
6.5
7.2
8.7
9.8
8.8
6.2
7.07.3
7.9
5.7
4.3
6.3
8.2
6.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
CM
T
MC
T
SP
H R
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MA
GIC
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FC
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SG
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Retail Office Industrial DC Hospitality Healthcare SG Biz Asian Infra Aust. Infra
Market Cap (S$ mn) - LHS 2016 yield (%) - RHS
Source: Company data, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates
Yield spread comparison
Using the yield spread between the top-ten longest WALE REITs plus Singapore business
trusts of 3.89% and the ten-year government bond yield of 2.66%, the implied yield is
6.55%. However, if we took a more normalised assumption to the ten-year bond yield and
assumed the historical average of 3%, we arrive at an implied yield of 6.48%.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 26
Figure 50: Enlarged trust yield versus other yield products Figure 51: Defensive (long WALE names & SG business
trusts) yield spread versus historical average
7.27.0 6.8
5.6 5.8 6.16.1 6.2
7.67.0
6.3
4.1 4.0
2.6 2.5 2.7
1.5
0.0
2.0
4.0
6.0
8.0
Enl
arge
d K
IT
Hos
pita
lity
Indu
stria
l
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lthca
re
Ret
ail
Offi
ce
Kep
pel D
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S-R
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s
Sin
gapo
re
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ian
Infr
a
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an In
fra
Tru
sts
Tel
cos
Isla
ndw
ide
Prim
e
CP
F (
ordi
nary
acc
ount
)
10-y
ear
Gov
t Bon
d
12M
Fix
ed d
epos
itInfra S-REITs Peers Residential Others
%
3.89
3.48
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
Top 10 WALE REITs & SG Biz Trusts vs 10yr Govt bond
Subprime period
Normalised average
Yield spread% Yield spread%
Source: CBRE (for residential yields), CPF, company data, IBES,
Credit Suisse estimates
Source: Company data, the BLOOMBERG PROFESSIONAL™
service, Credit Suisse estimates
Figure 52: S-REITs and comparable business trusts by total assets
9.9
8.6
7.9
7.3
6.5
5.7
4.9
4.6
4.1
4.1
3.3
3.3
2.9
2.5
2.5
2.4
2.2
1.9
1.8
1.8
1.7
1.7
1.7
1.5
1.4
1.4
1.2
1.2
1.1
1.1
1.1
0.9
19.8
4.1
2.5
2.0
1.0
1.0
15.3
3.0
2.5
0.9
12.4
10.4
9.4
3.4
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
CM
T
Sun
tec
AR
EIT
Kep
RE
IT
CC
T
CR
CT
MC
T
MLT
Asc
ott
MA
GIC
MIN
T
SP
H R
EIT
FC
T
Far
Eas
t
For
tune
CD
LHT
SG
RE
IT
FC
OT
Fra
sers
HT
OU
EH
T
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T
PLi
fe R
EIT
OU
EC
T
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t RE
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Viv
a
HP
HT
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IT
AP
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dia
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Hkt
Tru
st &
Hkt
Tru
e T
elec
oms
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Rai
l
Hkb
n
Aus
net
Due
t
Apa
Spa
rk In
fra
SG REITS SG Business Trust Other AsianInfra Trust
AustralianInfra
S$
bn
NB: As of 31 December 2014. Source: Company data, Credit Suisse estimates
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 27
Financial summary Figure 53: Keppel Infrastructure Trust: Summary of financials
S$'000 2014 2015E 2016E 2017E
Income statement
Revenue 715,954 707,099 719,166 743,611
Other income 4,110 2,920 2,920 2,920
Other (losses)/gains–net (4,342) - - -
Expenses (722,318) (693,845) (700,665) (709,783)
Share of results of JV (43) (43) (43) (43)
Operating income (6,639) 16,130 21,378 36,705
Tax (708) (4,250) (4,540) (4,663)
Profit after tax (7,347) 11,880 16,838 32,042
Attributable to:
Unitholders 16,696 37,035 41,577 50,753
NCI (24,043) (25,154) (24,739) (18,711)
EBITDA 232,912 249,782 250,580 262,854
Distributable cash flows 161,005 130,969 154,656 163,082
Total distributions 139,251 143,948 143,948 143,948
Payout ratio 86% 110% 93% 88%
Balance sheet
Current assets 641,188 613,188 600,108 614,964
Non-current assets 3,861,841 3,747,675 3,624,339 3,490,777
Total assets 4,503,029 4,360,864 4,224,447 4,105,742
Current liabilities 232,048 235,081 237,526 242,479
Non-current liabilities 2,697,173 2,686,594 2,677,394 2,668,194
Total liabilities 2,929,221 2,921,675 2,914,920 2,910,673
Minority interest 256,644 228,429 200,629 178,856
Equity 1,573,808 1,439,188 1,309,526 1,195,068
Cash flow statement
Net profit (25,638) 16,087 21,335 36,662
Operating CF before working capital changes 240,982 234,700 238,779 250,485
Changes in working capital (48,654) (77,471) (81,180) (80,022)
Net cash generated from operating activities 192,328 157,229 157,599 170,463
Net cash used in investing activities (300,958) (29,091) (17,000) (4,000)
Net cash provided by financing activities 41,009 (157,079) (155,700) (155,700)
Net increase in cash and cash equivalents (67,621) (28,941) (15,101) 10,763
Cash and cash equivalents at beginning of the period 271,937 203,759 174,818 159,717
Effect of currency translations of cash and cash equivalents (557) - - -
Cash and cash equivalents at end of the period (Cash flow) 203,759 174,818 159,717 170,480
NB: Year ending 31 Dec. Pro forma assuming acquisition and restructuring had occurred before 1 Jan 2014.
Adjusted EBITDA means reported EBITDA plus reduction in concession receivable and excluding non-
recurring expenses.
Source: Company data, Credit Suisse estimates.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 28
Figure 54: Keppel Infrastructure Trust: Pro-forma income statement
S$'000 2014 2015E 2016E 2017E
Revenue 715,954 707,099 719,166 743,611
Other income 4,110 2,920 2,920 2,920
Other (losses)/gains–net (4,342) - - -
Expenses
Fuel & electricity cost (220,425) (226,373) (231,556) (236,875)
Gas transportation costs (84,866) (86,883) (89,142) (91,459)
Depreciation & amortisation (116,671) (104,499) (101,578) (98,804)
Staff costs (26,505) (24,336) (24,868) (25,538)
O&M costs (75,965) (76,537) (76,789) (77,279)
Network operations and maintenance costs - - (2,408) (4,815)
Finance costs (131,413) (116,050) (117,922) (117,201)
Construction expenses - - - -
Trust management fees (8,868) (13,060) (9,658) (10,102)
Other operating expenses (57,605) (46,109) (46,744) (47,710)
Share of results of JV (43) (43) (43) (43)
Operating income (6,639) 16,130 21,378 36,705
Tax (708) (4,250) (4,540) (4,663)
Profit after tax (7,347) 11,880 16,838 32,042
Attributable to:
Unitholders 16,696 37,035 41,577 50,753
NCI (24,043) (25,154) (24,739) (18,711)
EBITDA 232,912 249,782 250,580 262,854
Concession receivable 47,140 47,467 47,807 48,161
Hydro Tasmania dispute settlement 6,900 - - -
Adjusted EBITDA 286,952 297,249 298,387 311,015
Distributable cash flows 161,005 130,969 154,656 163,082
Total distributions 139,251 143,948 143,948 143,948
Payout ratio 86% 110% 93% 88%
NB: Year ending 31 Dec. Pro forma assuming acquisition and restructuring had occurred before 1 Jan 2014. Adjusted EBITDA means reported
EBITDA plus reduction in concession receivable and excluding non-recurring expenses. Source: Company data, Credit Suisse estimates.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 29
Figure 55: Keppel Infrastructure Trust: Balance sheet
S$'000 2014 2015E 2016E 2017E
Current assets 641,188 613,188 600,108 614,964
Cash and cash equivalents 381,465 352,524 337,423 348,186
Trade and other receivables 129,824 132,512 134,068 137,222
Service concession receivables 54,956 54,956 54,956 54,956
Derivative financial instruments 1,568 1,568 1,568 1,568
Finance lease receivables 8,638 8,638 8,638 8,638
Inventories 60,089 58,343 58,807 59,747
Other current assets 4,648 4,648 4,648 4,648
Non-current assets 3,861,841 3,747,675 3,624,339 3,490,777
Service concession receivables 471,047 432,289 393,531 354,773
Finance lease receivables 133,137 133,137 133,137 133,137
Other non-current assets 1,736 1,736 1,736 1,736
Investment in JV 10,866 32,957 32,957 32,957
PPE 2,086,028 1,988,529 1,903,951 1,809,147
Intangibles 1,159,027 1,159,027 1,159,027 1,159,027
Total assets 4,503,029 4,360,864 4,224,447 4,105,742
Current liabilities 232,048 235,081 237,526 242,479
Derivative financial instruments 16,342 16,342 16,342 16,342
Trade and other payables 182,207 185,240 187,685 192,638
Loan from a related party 3,479 3,479 3,479 3,479
Current tax liabilities 12,028 12,028 12,028 12,028
Borrowings 17,992 17,992 17,992 17,992
Non-current liabilities 2,697,173 2,686,594 2,677,394 2,668,194
Derivative financial instruments 85,704 85,704 85,704 85,704
Borrowings 1,851,597 1,841,018 1,831,818 1,822,618
Notes payable to minority interest 260,000 260,000 260,000 260,000
Deferred tax liabilities 188,328 188,328 188,328 188,328
Provisions 22,465 22,465 22,465 22,465
Other non-current liabilities 289,079 289,079 289,079 289,079
Total liabilities 2,929,221 2,921,675 2,914,920 2,910,673
Equity 1,573,808 1,439,188 1,309,526 1,195,068
Units in issue 2,061,585 2,061,585 2,061,585 2,061,585
Hedging reserve (205,888) (205,888) (205,888) (205,888)
Translation reserve (26,332) (26,332) (26,332) (26,332)
Capital reserve 38,710 38,710 38,710 38,710
Accumulated loss (550,911) (657,315) (759,177) (851,863)
Minority interest 256,644 228,429 200,629 178,856
NB: Pro forma assuming acquisition and restructuring had occurred on 31 Dec 2014
Source: Company data, Credit Suisse estimates
03 August 2015
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(KEPL.SI / CITY SP) 30
Figure 56: Keppel Infrastructure Trust: Cash flow statement
S$'000 2014 2015E 2016E 2017E
Profit before tax (25,638) 16,087 21,335 36,662
Adjustments for: - - - -
Depreciation and amortisation 116,671 104,499 101,578 98,804
Finance costs 131,413 116,050 117,922 117,201
Interest income (2,294) (1,979) (2,101) (2,224)
Interest expense - - - -
FV gain on derivative financial instruments 3,467 - - -
PPE written off 33 - - -
Gain associated with purchase and cancellation of Basslink bonds (1,852) - - -
Gain on disposal of PPE (14) - - -
Transaction costs related to acquisition of subsidiaries 19,000 - - -
Share of results of JV 43 43 43 43
Unrealised translation loss 153 - - -
Operating CF before working capital changes 240,982 234,700 238,779 250,485
Changes in working capital
Inventories 677 1,746 (464) (940)
Service concession receivables 38,758 38,758 38,758 38,758
Trade and other receivables 11,579 (2,688) (1,557) (3,153)
Trade and other payables 20,093 3,033 2,445 4,953
Interest received 2,245 1,979 2,101 2,224
Interest paid (120,540) (116,050) (117,922) (117,201)
Income tax paid (1,466) (4,250) (4,540) (4,663)
Net cash generated from operating activities 192,328 157,229 157,599 170,463
CF from investing activities
Investment in and advance to JV (10,909) (22,091) - -
Purchase of PPE (17,331) (7,000) (17,000) (4,000)
Proceeds from sale of PPE 1,282 - - -
Acquisition on subsidiaries (255,000) - - -
Transaction costs related to acquisition of subsidiaries (19,000) - - -
Net cash used in investing activities (300,958) (29,091) (17,000) (4,000)
CF from financing activities
Increase in restricted cash (7,318) - - -
Proceeds from notes issued by subsidiary to NCI 245,000 - - -
Proceeds from borrowings 1,796,846 - - -
Repayment of borrowings (1,112,405) (10,579) (9,200) (9,200)
Repayment of related party loan (1,200,000) - - -
Payment of loan upfront fees (20,526) - - -
Issuance of units, net of cost 517,000 - - -
Distributions paid to unitholders of the Trust (174,527) (143,439) (143,439) (143,439)
Distributions paid by subsidiary to minority unitholder (3,061) (3,061) (3,061) (3,061)
Net cash provided by financing activities 41,009 (157,079) (155,700) (155,700)
Net increase in cash and cash equivalents (67,621) (28,941) (15,101) 10,763
Cash and cash equivalents at beginning of the period 271,937 203,759 174,818 159,717
Effect of currency translations of cash and cash equivalents (557) - - -
Cash and cash equivalents at end of the period (Cash flow) 203,759 174,818 159,717 170,480
NB: Pro forma assuming acquisition and restructuring had occurred on 1 Jan 2014.
Source: Company data, Credit Suisse estimates
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Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 31
Risks In assessing the risks, we look at a combination of industry as well as company-specific
risks. Keppel Infrastructure Trust’s cash earnings are exposed to availability of assets, and
higher-than-expected downtime could consequently affect our distributable cash flow
estimates.
Risks relating to enlarged KIT assets
Lower-than-expected availability of assets
If KMC does not ensure that the KMC Plant is able to meet certain availability and capacity
targets for Keppel Electric (the Toller), the Toller is not required to pay the fixed capacity
fee of S$9,000,000 per month to KMC in full, and may reduce the payments
proportionately. Therefore, while the CTA is designed to ensure that KMC does not take
on the market risks of owning and operating a power plant as an independent power
producer, KMC is still subject to the risks of the KMC Plant being unable to meet the
availability and capacity targets in order to receive the capacity fees in full. Assuming that
the CTA had been effective in 2014, the availability factor would have been 99.5%. This
was due to a single isolated incident involving one generating unit. Correspondingly, the
capacity fee if the CTA was in place in 2014 would have been S$107.3 mn. Operator
training and standard operating procedures have been improved to avoid recurrence.
Likewise, if the time required for repairs and maintenance of the plants exceeds the time or
frequency anticipated, the available incineration capacity for the Senoko Plant and the Tuas
DBOO Plant, or available production capacity for the Ulu Pandan Plant, or available
electricity generation capacity for the KMC Plant, may fall below their respective contracted
capacities. This could result in the Senoko Trustee, the Tuas DBOO Trustee, the Ulu
Pandan Trustee or KMC, not receiving the full payments due under the respective Senoko
ISA, the Tuas DBOO ISA, the NEWater Agreement or the CTA. As shown in Figure 57 and
Figure 58, both Senoko and Tuas DBOO have an availability factor above the requirement
since July 2010.
Figure 57: Senoko Time availability factor Figure 58: Tuas Time availability factor
50.00%
55.00%
60.00%
65.00%
70.00%
75.00%
80.00%
85.00%
90.00%
95.00%
100.00%
Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14
Senoko Time Availability Factor Requirement
50.00%
55.00%
60.00%
65.00%
70.00%
75.00%
80.00%
85.00%
90.00%
95.00%
100.00%
Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14
Tuas DBOO Availability Factor Requirement
Source: Company data Source: Company data
Changes to the tolling fee in the event of material adverse change
Both the Toller and KMC have the right to request a negotiation over an adjustment to the
tolling fee when a 'material adverse change' occurs, which includes changes to the vesting
contract level or vesting contract price. As the vesting contract price and level are subject
to change approximately every two years, there could be situations in which the tolling fee
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 32
may reduce in the near future. However, although the Toller has the right to request an
adjustment of the tolling fee, it is not an automatic entitlement. KMC will be required to
negotiate with the Toller but it is not legally obliged to agree to any change to the tolling
fee if it is not in its best interests to do so.
Vesting contracts were implemented by the Energy Market Authority in January 2004 to
control the exercise of market power by the generation companies and promote efficiency
and competition in the electricity market. The vesting contracts commit the generation
companies to sell a specified amount of electricity (vesting contract levels) at a specified
price (the vesting contract price). As a result, it takes away incentives for the generation
companies to exercise their market power by withholding their generation capacity to push
up spot prices in the wholesale electricity market. Vesting contracts were allocated only to
generation companies that had made their planting decisions before the decision in 2001
to introduce vesting contracts. A generation company’s allocation is made in proportion to
the licensed capacity eligible for vesting contracts, as shown in Figure 59.
Figure 59: Maximum capacity eligible for vesting contracts
Genco Maximum capacity (MW)
Seraya 3,100
Senoko 3,300
Tuas 2,670
Sembcorp 785
Keppel 470
PacificLight Power 800
Source: Energy Market Authority
Following a biennial review, EMA has announced that the vesting contract level will be
progressively reduced from 40% to 30% for 1H15, 25% for 2H15, and 20% for 2016. This
was driven by the view that it can be lowered to the LNG vesting level (about 16%) for
2015–16 without market power concerns. The gradual reduction is intended to allow the
respective retail arms to adjust their hedging portfolios and contract cover as the vesting
contract level is reduced from 40% to 20%. In particular, it was noted that there is no intent
for vesting contracts 'to provide revenue certainty to the gencos nor is the sustainability of
gencos' revenue a factor that should be taken into account when setting the VCL.”
Figure 60: Vesting contract level to fall to 30% in 1H15, 25% in 2H15, and 20% in 2016
Period Vesting contract level
1 Jan 2011 - 31 Dec 2011 60%
1 Jan 2012 - 30 Jun 2013 55%
1 Jul 2013 - 31 Dec 2013 50%
1 Jan 2014 - 31 Dec 2014 40%
1 Jan 2015 - 30 Jun 2015 30%
1 Jul 2015 - 31 Dec 2015 25%
1 Jan 2016 - 31 Dec 2016 20%
Source: Energy Market Authority
As shown in Figure 61, the vesting contract price of S$160/MWh is at a 81% premium to
the USEP of S$89/MWh in 1Q15. While the average USEP rose above the vesting price
for certain periods in 2Q09-1Q12, the average USEP has been consistently below the
vesting price since 3Q12 as new generation capacity has been added to the market.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 33
Figure 61: Vesting contract levels will decline to 30% in 1H15, 25% in 2H15, and 20% in
2016, which is likely to lead to a fall in blended spreads
10%
20%
30%
40%
50%
60%
70%
0
100
200
300
400
500
600
Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15
Vesting Price ($/MWh) (LHS) Uniform Singapore Electricity Price ($/MWh) (LHS)
Source: Energy Market Authority, Energy Market Company
Contract renewal risk
After the initial 15-year term, the toller, Keppel Electric, has certain rights to provide a
matching offer if KMC proposes to source for a third party to enter into a new CTA. If KMC
cannot find a third party within a prescribed time period, the toller is given an option (but has
no obligation) to extend the duration of the CTA by a ten-year period on the same terms. If
the CTA is not renewed and KMC is unable to find other tollers, KMC is potentially exposed
to market risk. However given the strategic nature of power plants in Singapore, with
difficulties to replicate due to land constraints, construction cost and other restrictions, we
believe that the risk of KMC being exposed to market risk after 15 years is low.
Variability in CityGas' cash earnings
There is variability in CityGas' cash earnings and it can be affected by movements in fuel
costs. Fuel costs consist mainly of the cost of natural gas. This is, in turn, recoverable from
the fuel component of the town gas tariffs determined by the EMA. On a long-term basis,
changes in fuel costs are expected to have no impact on CityGas as fuel costs are passed
through to end-users. However, at any point in time, the actual tariff for town gas may not
exactly match fuel costs as tariff changes are subject to a periodic regulatory process
whereas fuel prices change daily. The short-term impact may therefore be evident if there
are changes in fuel prices.
In addition, if the conditions in the gas retailer licence granted by EMA to CityGas require
any change in town gas tariffs, they have to be approved by EMA. On certain occasions,
CityGas has been allowed by EMA to adjust the tariff to take into account increases in fuel
prices. In the event that EMA does not allow CityGas to increase its tariff for whatever
reason, CityGas may not be able to generate sufficient revenue to cover its increased
costs which would adversely affect its earnings.
CityGas may be impacted by change in regulatory structure of gas industry in
Singapore
There have been discussions between CityGas, SP PowerGrid and EMA on the proposed
conversion of the low-pressure piped town gas supply network in Singapore to carry
natural gas. If implemented, CityGas could incur substantial conversion costs. EMA has
started a public consultation on gas conversion. If approved, the conversion project is
expected to take six to seven years to complete, comprising approximately one-and-a-half
years for project preparation and a further five years for project implementation. Upon
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approval of the project it is expected that PowerGas will carry out the conversion of the
gas network from carrying town gas to natural gas, while CityGas will carry out the
conversion of the gas appliances of its customers. CityGas will be responsible for ensuring
that appliances operate satisfactorily and safely on natural gas at the point of conversion.
CityGas estimates that the costs of conversion to natural gas would be approximately
S$200 mn over an estimated period of six to seven years. If conversion occurs, CityGas
intends to explore ways to raise financing, including debt financing, to meet those costs.
CityGas faces price competition from retailers of LPG and electricity
CityGas faces price competition from retailers of LPG, which is an alternative product used
by consumers in Singapore for cooking. The price of CityGas’ town gas relative to the
price of LPG could affect the revenue which CityGas generates from certain segments of
the commercial market in Singapore if its customers decide to use LPG instead of town
gas due to the lack of price competitiveness on the part of town gas supplied by CityGas.
Figure 62: Town gas tariffs versus electricity tariffs
0
5
10
15
20
25
30
4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14
Town Gas (cents/kWh) Electricity (cents/kWh)
Source: EMA
SingSpring may be impacted by lower-than-expected offtake of desalinated water
PUB is not required to commit to any minimum offtake of desalinated water. If PUB
reduces its offtake, SingSpring’s variable revenue will be negatively impacted. The
Singspring Plant is designed to produce water cost-effectively within a certain range of the
plant’s daily production capacity. If PUB chooses to take desalinated water at a rate
outside of the design range, SingSpring’s cash flow would be negatively affected from the
reduced variable revenue and increased operational costs associated with producing
desalinated water in a less efficient manner. The reliability of the plant may also be
negatively impacted.
Commercial Risk Sharing Mechanism of Basslink
While the stated intention of this mechanism is to have a neutral impact on both parties
over the longer term, there could be short-term fluctuations in CRSM adjustments due to
periods of droughts or other seasonal variations, or other disruptions affecting Victorian
power generators or transmission network or the Victorian electricity market generally.
Such fluctuations may result in an outflow of payment from Basslink to Hydro Tasmania.
This may adversely affect the revenue of Basslink under the Basslink Services Agreement
and, hence, may consequently have a material adverse effect on the Enlarged Trust’s
financial results and, ultimately, distributions to unitholders of the Enlarged Trust.
03 August 2015
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(KEPL.SI / CITY SP) 35
Fees payable to KMC O&M under the OMSA are not fixed
The OMSA is not a fixed price agreement and there is potential for the amount payable by
KMC to KMC O&M to exceed the budgeted amounts, such as costs incurred for
unplanned maintenance which is not due to the fault of KMC O&M. KMC O&M will not be
liable for outages or breakdowns if KMC does not meet unforeseen expenses outside
KMC O&M’s control. This may lead to KMC’s profits being eroded if it is unable to manage
KMC O&M’s expenses. However, cost control mechanisms have been included in the
OMSA to limit the extent of such costs increase, including:
■ KMC is able to reimburse all costs during an initial two-year period to achieve a better
understanding of the budgeting and cost structures of the project such that it is better
able to prevent cost overruns from the third year onwards;
■ All reimbursable expenses have to meet the requirements of the defined term
'reimbursable expenses items', except any costs caused by KMC O&M’s negligence or
breach of the OMSA; and
■ KMC O&M is only able to incur additional reimbursable expenses beyond the amounts
under the AOMP with KMC’s consent
FX risks
Keppel Infrastructure Trust is exposed to Australian Dollar (AUD) foreign currency risk as
its Australian subsidiaries make its distribution in AUD, which affects the amount of SGD
distributions that KIT is able to pay its unitholders. Borrowing in Australian currency
provides a natural currency hedge against FX exposure arising from business cash flows.
Credit Suisse has AUD/USD forecast of 0.71 in three months and 0.68 in 12 months.
According the Credit Suisse FX team, the market is currently pricing in a modest 18%
probability of an August RBA rate cut, which we think is too low and see scope for a
dovish surprise to weigh on the AUD. Iron ore and oil prices have fallen 20% and 15%,
respectively, since early June, putting renewed pressure on Australia’s terms of trade.
RBA Governor Stevens has also reiterated that additional rate cuts remain on the table,
but that they would need to create a sustained benefit to the economy. However, as cash
flow from Basslink is not used for distribution to unitholders currently, we do not expect a
further weakening in the AUD to have an impact on near-term DPU for KIT.
Figure 63: AUD versus USD and AUD versus SGD
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Series1 AUD/SGD
Source: the BLOOMBERG PROFESSIONAL™ service
03 August 2015
Keppel Infrastructure Trust
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Appendix I: Management profile Key management personnel
Mr Khor Un-Hun, Chief Executive Officer (CEO)
Mr Khor joined Keppel Infrastructure Holdings Pte Ltd (KI) as Development Director in
April 2014, where he worked on KI’s various business development initiatives. He was
appointed CEO of the Trustee-Manager since May 2014, where he is responsible for
working with the Board to determine the strategy for Keppel Infrastructure Trust (KIT). He
works with other members of the Trustee-Manager’s management team to execute the
stated strategy of the Trustee-Manager. Prior to joining KI, Mr Khor spent most of his
career in banking, during which he was involved in a wide range of mergers and
acquisitions, financial advisory, capital markets and debt transactions across different
sectors throughout Asia.
Mr Koh Hee Song, Senior Adviser
As a Senior Adviser since June 2010, Mr Koh works with the other members of the
Trustee-Manager’s management team to evaluate potential acquisitions and/or
divestments and recommend and analyse potential asset enhancement initiatives from a
technical perspective. He also advises the management team on technical matters relating
to the business of KIT as and when circumstances require. Prior to this, Mr Koh was a
Senior Adviser to Keppel Seghers Engineering Singapore Pte Ltd in matters pertaining to
solid waste management projects.
Mr Lionel Chua, Chief Financial Officer (CFO)
Mr Chua, appointed CFO since May 2013, is responsible for the Trustee-Manager's and
KIT’s financial and reporting functions, including accounting, taxation, treasury and
compliance. Mr Chua has more than 17 years of experience in financial and management
accounting where he has held senior positions, including vice president (finance) of The
Ascott Group Limited and CFO of Mary Chia Holdings Limited. He has also worked at
CapitaLand Group and Singapore Airlines Limited. Prior to joining the Trustee-Manager,
Mr Chua was the financial controller at Keppel REIT Management Limited.
Ms Foo Chih Chi, Senior Investment Manager
As a Senior Investment Manager since June 2010, Ms Foo is responsible for identifying
and evaluating potential acquisitions with a view to enhance KIT’s portfolio. Ms Foo has
over ten years of experience in investment evaluation, corporate strategy and new
business development. She joined Keppel Corporation in 2000 where, as a part of Keppel
Corporation’s strategic development and planning division, she was responsible for
corporate strategy and new business development.
Mr Liew Yuen Cheng, Senior Asset Manager
As the Senior Asset Manager since June 2010, Mr Liew implements asset management
plans for KIT’s asset portfolio by engaging the Operations and Maintenance contractor to
ensure that the required levels of service standards are met and also to enhance
operational performance. He works with the Operations and Maintenance contractor in
asset enhancement and upgrading projects as well.
Mr Liew joined Keppel FELS Limited in 1998, where he held various positions in the
production, engineering and marketing departments. From 2004 to 2008, he was
seconded to Caspian Shipyard Company Ltd in Azerbaijan as a commercial manager.
Prior to joining the Trustee-Manager, he was a project manager for EPC rig construction
projects in Keppel FELS Limited in Singapore.
03 August 2015
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(KEPL.SI / CITY SP) 37
Board of directors of the trustee-manager
Six of eight of the board members are independent. Board members and roles effective
from 1 August 2015.
Koh Ban Heng, Independent director and chairman of the board of directors of KIFM
Mr Koh is currently an independent director of Keppel Infrastructure Holdings Pte Ltd, Linc
Energy Ltd and Tipco Asphalt PLC. He served as CEO and executive director at SPC for
almost eight years (from August 2003 to June 2011) and subsequently as senior adviser
for SPC after his retirement.
Mr Mark Andrew Yeo Kah Chong, Independent Director and Chairman of the Audit
Committee of KIFM
Mr Yeo is currently an adviser to Al Fahim Holdings LLC and is a director of IP Global
Limited. Prior to that, he was Managing Director of the privately held IMC Pan Asia
Alliance. Mr Yeo was a former independent director of CitySpring Infrastructure
Management Pte Ltd, which is the former Trustee-Manager of CitySpring Infrastructure
Trust (CIT). He was also the former Chairman of CIT's Audit Committee and a member of
its Conflicts Resolution Committee.
Mr Kunnasagaran Chinniah, Independent Director
Mr Chinniah is currently a director of Changi Airport International, the international
subsidiary of Changi Airport Group, and sits on the boards of Edelweiss Financial Services
Limited (EFSL) and two of its subsidiaries. Mr Chinniah was previously the Managing
Director / Global Co-Head of Portfolio, Strategy and Risk group with GIC Special
Investments (GIC SI), the private equity arm of GIC Private Limited, before retiring from
the role in September 2013.
Ms Quek Soo Hoon, Independent director
Ms Quek is currently an Operating Partner at iGlobe Partners (II) Pte Ltd and a
Distinguished Fellow of the International Association of Insurance Supervisors, with
directorship with organisations such as Singapore Deposit Insurance Corporation Ltd,
Special Needs Trust Company Ltd, School of the Arts and Enactus Singapore.
Mr Thio Shen Yi, Independent Director and Chairman of the Nominating and
Remuneration Committee of KIFM
Mr Thio is a Senior Counsel and joint managing director of TSMP Law Corporation. He is
also the president of the Law Society of Singapore and member of its Ethics Committee.
Prior to this, he was admitted as an advocate and solicitor of the Supreme Court of
Singapore in 1993 before being appointed as a fellow of the Singapore Institute of
Arbitrators in 2006 and Senior Counsel by the Selection Committee under the Legal
Profession Act (Chapter 161) in 2008.
Mr Daniel Cuthbert Ee Hock Huat, Independent Director and Chairman of the
Conflicts Resolution Committee of KIFM
Mr Ee is currently chairman of CSIM and a director of Citibank Singapore Limited. He is
also the deputy chairman of the Securities Industry Council and a Fellow and Council
Member of the Singapore Institute of Directors. Prior to this, he was the Chairman of Gas
Supply Pte Ltd from 2002 to 2010, on the board of National Environment Agency from
2006 to 2012 and a Member of the Corporate Governance Council from 2010 to 2012.
Dr Ong Tiong Guan, Non-executive and Non-Independent Director of KIFM
Dr Ong is currently the CEO of Keppel Infrastructure Holdings Pte Ltd and is responsible
for KepCorp's power generation and gas business. Prior to this, he was appointed an
executive director of Keppel Energy in 1999 and became managing director of Keppel
03 August 2015
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(KEPL.SI / CITY SP) 38
Energy in 2003. Dr Ong was chairman of the Singapore Electricity Pool Executive
Committee for its financial year 2002/2003.
Mr Alan Tay Teck Loon, Non-Executive and Non-Independent Director of KIFM
Mr Tay is Executive Director, Business Development of Keppel Infrastructure Holdings Pte
Ltd. Prior to joining Keppel Group, he was head of Southeast Asia for JPMorgan Asset
Management, Global Real Assets – Asian Infrastructure, a US$860 mn private equity fund
focused on infrastructure and related resources investments across Asia.
03 August 2015
Keppel Infrastructure Trust
(KEPL.SI / CITY SP) 39
Appendix II: Payment structure Payment structure
Figure 64 summarises the payment structure of key KIT assets.
Figure 64: Payment structure
Asset Counter
party
Type Amount/ Name Conditions/ Details Adjustments
KMC Keppel
Electric
Fixed S$108 mn p.a. Payable in full if KMC able to meet availability and capacity target
tests
No
Fixed S$25.24 mn p.a. Pass-through cost borne by Toller Singapore CPI
Senoko WTE NEA Fixed Capital cost Payable in full if the available incineration capacity of Senoko Plant is
greater than or equal to 2,100 t/day
No
Fixed O&M Covers payment to Keppel Seghers, property tax, trust management
fees, licensing fees and insurance costs incurred
Singapore CPI
Variable O&M Based on actual quantity of waste delivered to Senoko Plant Singapore CPI
Variable Electricity
generation
incentive payment
Based on % of revenues from the volume of electricity exported to
NEMS
No
Variable Reimbursement For energy market charges payable by Senoko Trustee as a
participant in the NEMS
No
Tuas DBOO NEA Fixed Capital cost Payable in full if the available incineration capacity of Tuas DBOO
Plant is greater than or equal to 800 t/day
No
Fixed O&M Covers payment to Keppel Seghers, property tax, trust management
fees, licensing fees and insurance costs incurred
Singapore CPI
Variable O&M Based on actual quantity of waste delivered to Tuas DBOO Plant Singapore CPI
Variable Electricity
generation
incentive payment
Based on % of revenues from the volume of electricity exported to
NEMS
No
Variable Reimbursement For energy market charges payable by Tuas DBOO Trustee as a
participant in the NEMS
No
Ulu Pandan PUB Fixed Capital cost Payable in full if the available production capacity of Ulu Pandan Plant
is greater than or equal to 148,000 m3 per day
No
Fixed O&M Covers payment to Keppel Seghers, property tax, trust management
fees, licensing fees and insurance costs incurred
Singapore CPI
Variable O&M Based on actual quantity of NEWater delivered to PUB Singapore CPI
Variable Power payment Based on usage power charges incurred Fuel price index
SingSpring PUB Fixed S$23.6 p.a. Payable in full for making available the full water capacity of 136,380
m3/ day
No
Fixed O&M Covers payment to Hyflux Engineering Singapore CPI
and forex
Fixed Energy cost To offset part of the energy costs incurred Singapore CPI
Variable O&M Payable to Hyflux Engineering, based on volume of water supplied Singapore CPI
and forex
Variable Energy cost Based on volume of water supplied Singapore CPI
Basslink Hydro
Tasmania
Fixed Basslink Facility
Fee
Payable in full if Basslink's cumulative availability is equal to or
greater than 97%
Quarterly to
reflect 65% of
Australia CPI
Fixed Incentive
availability
Payable if the interconnector is fully available during periods when
Victorian electricity prices are at their highest
No
Variable FIRD A 25-year interest rate hedge provided by Hydro Tasmania No
Variable CRSM Based on difference between high and low Victorian electricity pool
prices, subject to a limit of +25% and -20% of the Facility Fee
No
Source: Company data as of March 2015
03 August 2015
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(KEPL.SI / CITY SP) 40
Appendix III: Fee structure Details of the proposed fee structure of the Trustee-Manager for the Enlarged Trust and
CSIM’s existing fee structure for CIT are shown in Figure 65.
Management fee comprises a base fee of S$2.0 mn p.a. subject to increase each year by
such percentage increase (if any) in the average of the monthly Singapore CPI for the 12
calendar months immediately preceding the beginning of each financial year over the
average of the monthly Singapore CPI for 2010. The base fee for the financial year ended
31 December 2014 was approximately S$2.25 mn.
Performance fee is charged at 4.5% p.a. of all the cash inflow received by the Enlarged
Trust from its sub-trusts and subsidiary companies.
Acquisition fee is charged at 0.5% of the enterprise value (“EV”) of any investment
acquired from Sponsor Group Entities and 1.0% of the EV of any investment acquired
from non-Sponsor Group Entities. Divestment fee is charged at 0.5% of the EV of any
investment sold by the Enlarged Trust.
Keppel Infrastructure, the sponsor of KIT, has agreed that the Trustee-Manager shall only
charge its acquisition fee of S$4.335 mn (being 0.5% of 51% of the enterprise value of the
KMC acquisition) and any applicable taxes for the KMC acquisition and shall waive its
divestment fee for the Cityspring Contract. Temasek, the sponsor of CIT and owner of
CSIM, has agreed that CSIM will not receive any compensation for relinquishing its role as
trustee-manager of CIT.
Figure 65: Fee structure of Enlarged Trust
Types of fees Current fee structure of CSIM for CIT Proposed fee structure of the replacement Trustee-
Manager for the Enlarged Trust
Base fee 1% p.a. of CIT's market capitalisation subject to a
minimum of S$3.5 mn p.a.
S$2.0 mn p.a. subject to increase each year by such %
increase (if any) in the average of the monthly Singapore
CPI for the 12 calendar months immediately preceding
the beginning of each financial year over the monthly
Singapore CPI for 2010. The base fee for the Trustee-
Manager for the financial year ended 31 December 2014
is approximately S$2.25 mn
Performance fee 20% of outperformance measured by comparing the total
return on CIT units against the total return of the MSCI
Asia Pacific ex-Japan Utilities Index, after taking into
account the underperformance in the prior period
4.5% p.a. of all the cash inflow received by the Enlarged
Trust from its subsidiaries, associates, sub-trusts and
investments.
Mergers and acquisitions,
and disposal fees
NA Acquisition fee of 0.5% of the EV of any investment
acquired from the Sponsor Group Entities, and 1.0% of
the EV of any investment acquired from non-Sponsor
Group Entities.
Divestment fee of 0.5% of the EV of any investment sold
by the Enlarged Trust.
Source: Company data
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Appendix IV: Corporate structure Figure 66 shows the structure of the Enlarged Trust following the KMC acquisition and
combination with Cityspring Infrastructure Trust. Keppel Energy holds the remaining 49%
equity interest in KMC. Osaka Gas Singapore Pte Ltd holds the remaining 49% equity
interest in City OG. Hyflux holds the remaining 30% equity interest in SingSpring. WDC
Development Ptd Ltd, a wholly owned subsidiary of Shimizu Corporation, holds the
remaining 49% equity interest in DC One.
Figure 66: Structure of Enlarged Trust
Source: Company data
Businesses under Keppel Corp
The Keppel Group of Companies includes Keppel Offshore & Marine, Keppel
Infrastructure, Keppel Telecommunications & Transportation (Keppel T&T) and Keppel
Land, among others.
Keppel Infrastructure Trust's sponsor, Keppel Infrastructure, will drive the Group's strategy
to invest in, own and operate competitive energy and related infrastructure. Keppel
Infrastructure aims to tap the expertise and technology of its engineering business to grow
its power and gas, environmental and energy efficiency businesses.
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Figure 67: Keppel Corporation's business divisions
NB: As of July 2015 Source: Company data
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Companies Mentioned (Price as of 30-Jul-2015)
AIMS AMP Capital (AART.SI, S$1.485) APA Group (APA.AX, A$8.97) APTT (ASIA.SI, S$0.825) Ascendas India (AINT.SI, S$0.925) Ascendas REIT (AEMN.SI, S$2.42) Ascott Residence Trust (ASRT.SI, S$1.27) AusNet Services (AST.AX, A$1.36) BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIFu.BK, Bt10.3) CDL Hospitality Trusts (CDLT.SI, S$1.56) Cache Logis (CALT.SI, S$1.09) Cambridge Ind (CMIT.SI, S$0.66) CapitaRetail (CRCT.SI, S$1.625) Capitaland Commercial Trust (CACT.SI, S$1.42) Capitaland Mall Trust (CMLT.SI, S$2.05) DUET Group (DUE.AX, A$2.19) Far East H-Trust (FAEH.SI, S$0.71) First REIT (FRET.SI, S$1.36) Fortune REIT (FORT.SI, HK$8.31) Frasers (FRHO.SI, S$0.815) Frasers Centrepoint Trust (FCRT.SI, S$2.04) Frasers Commercial Trust (FRCR.SI, S$1.435) HKBN (1310.HK, HK$8.3) HKT Trust (6823.HK, HK$9.56) Hutchison Port Holdings Trust (HPHT.SI, $0.6) Keppel DC REIT (KEPE.SI, S$1.08) Keppel Infrastructure Trust (KEPL.SI, S$0.52, OUTPERFORM, TP S$0.57) Keppel REIT (KASA.SI, S$1.07) LMIR Trust (LMRT.SI, S$0.355) MGCCT (MAPE.SI, S$0.99) Mapletree Commercial Trust (MACT.SI, S$1.38) Mapletree Industrial Trust (MAPI.SI, S$1.54) Mapletree Logistics Trust (MAPL.SI, S$1.09) OUE C-REIT (OUEC.SI, S$0.71) OUE Hospitality Trust (OUER.SI, S$0.91) PLife REIT (PWLR.SI, S$2.41) Religare Health (RELI.SI, S$1.04) SPH REIT (SPHR.SI, S$1.02) Sabana Shariah (SABA.SI, S$0.83) Soilbuild (SBSR.SI, S$0.845) Spark Infrastructure Group (SKI.AX, A$1.9) Starhill Global (STHL.SI, S$0.855) Suntec REIT (SUNT.SI, S$1.68) TRUEGIF (TRUEIFu.BK, Bt12.7) Viva Industrial (VIVA.SI, S$0.795)
Disclosure Appendix
Important Global Disclosures
I, Gerald Wong, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, wi th Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.
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Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 50% (28% banking clients)
Neutral/Hold* 34% (41% banking clients)
Underperform/Sell* 13% (38% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Price Target: (12 months) for Keppel Infrastructure Trust (KEPL.SI)
Method: Our target price of S$0.57 for Keppel Infrastructure Trust is based on a discounted cash flow over the contract duration of assets, assuming a cost of equity of 6.25%
Risk: Key risks to our target price of S$0.57 for Keppel Infrastructure Trust include lower-than-expected availability of assets, changes to the KMC tolling fee in the event of material adverse change, variability in City Gas cash earnings, change in regulatory structure of gas industry in Singapore, interest rate and FX risks.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (KEPL.SI, CMLT.SI, OUER.SI, SPHR.SI, MACT.SI, CACT.SI, KEPE.SI, SUNT.SI, MAPL.SI, KASA.SI, AEMN.SI, FCRT.SI, ASRT.SI, 1310.HK, TRUEIFu.BK, SKI.AX, DUE.AX, HPHT.SI) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (KEPL.SI, CMLT.SI, OUER.SI, SPHR.SI, MACT.SI, CACT.SI, KEPE.SI, KASA.SI, FCRT.SI, ASRT.SI, 1310.HK, TRUEIFu.BK) within the past 12 months.
Credit Suisse has managed or co-managed a public offering of securities for the subject company (KEPL.SI, KEPE.SI) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (KEPL.SI, CMLT.SI, OUER.SI, SPHR.SI, MACT.SI, CACT.SI, KEPE.SI, KASA.SI, FCRT.SI, ASRT.SI, 1310.HK, TRUEIFu.BK) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (KEPL.SI, CMLT.SI, CDLT.SI, OUER.SI, SPHR.SI, MACT.SI, CACT.SI, KEPE.SI, SUNT.SI, MAPL.SI, KASA.SI, AEMN.SI, FCRT.SI, ASRT.SI, 6823.HK, 1310.HK, TRUEIFu.BK, SKI.AX, DUE.AX, HPHT.SI) within the next 3 months.
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (CDLT.SI, CACT.SI).
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For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (KEPL.SI, CMLT.SI, CDLT.SI, OUER.SI, SPHR.SI, MACT.SI, CACT.SI, KEPE.SI, MAPI.SI, SUNT.SI, MAPL.SI, KASA.SI, AEMN.SI, FCRT.SI, ASRT.SI, BTSGIFu.BK, 1310.HK, TRUEIFu.BK, SKI.AX, APA.AX, AST.AX, DUE.AX, HPHT.SI) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (KEPL.SI, OUER.SI, SPHR.SI, MACT.SI, CACT.SI, KEPE.SI, ASRT.SI, TRUEIFu.BK, SKI.AX, APA.AX, AST.AX) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: BTS Rail Mass Transit Growth Infrastructure Fund () , TRUEGIF ()
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse AG, Singapore Branch .......................................................................................................... Gerald Wong, CFA ; Shih Haur Hwang
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
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