CGS International Securities
June 27, 2025

Keppel Infrastructure Trust: Unlocking a 10% Yield with Defensive, Diversified Infrastructure Investments

Introduction: A New Benchmark for Yield and Stability in Infrastructure

Keppel Infrastructure Trust (KIT), a leading Singapore-based listed infrastructure fund, is making waves with its robust 10% dividend yield forecast for FY25-27. Backed by a diversified S\$9 billion portfolio spanning specialty chemicals, energy, public transportation, and renewables, KIT stands out for its defensive cash flows, inflation resilience, and active capital recycling. In this comprehensive analysis, we break down the investment case, financials, portfolio strategy, ESG profile, and risk factors that make KIT a standout pick in the global infrastructure sector.

Investment Highlights: Why KIT Stands Out

• Projected 10% dividend yield for FY25-27, with c.60% of portfolio income secured by concession/capacity contracts extending over 15 years.
• Stable, inflation-resistant cash flows supported by regulated asset cost pass-through mechanisms.
• Diversified income streams from specialty chemical, energy, public transportation, and renewable energy assets.
• Improving balance sheet, with divestment proceeds creating headroom for accretive acquisitions.
• TP of S\$0.45 per unit, implying a 13.9% upside from S\$0.395, and total shareholder returns of c.24%.

Portfolio Overview: Anchored in Evergreen and Contracted Assets

KIT operates with a clear strategy: 60% of distributable income is anchored by long-term (15+ years) contracts in utilities and energy sectors. The portfolio is geographically diversified and segmented across three pillars:

1. Energy Transition: Gas, electricity, and renewables globally (62% of AUM as of Mar 2025).
2. Distribution & Storage: Specialty chemicals and Australian bus operations (28% of AUM).
3. Environmental Services: Water and waste management plants in Singapore and Korea (10% of AUM).

KIT’s evergreen businesses—including renewables, digital infrastructure, and public transport—now drive organic and inorganic growth, reducing reliance on expiring concession assets.

Recent Strategic Moves: Capital Recycling and Global Expansion

• Divested a 24.62% stake in Ventura (S\$109m) to Samsung Asset Management, expected to lower gearing (currently 40.8% as of Mar 2025).
• Proposed acquisition of a 46.7% stake in Global Marine Group (GMG), a subsea cable specialist, to tap digital infrastructure growth.
• Continued pipeline of acquisitions and asset recycling, supporting sustainable dividend growth and portfolio renewal.

Financial Performance: Stable Returns and Growth Trajectory

Funds from Operations (FFO) are forecasted at S\$270m–280m, supporting a stable DPU of 3.9 Scts and a 10% yield. Distributable income is projected at S\$190m–210m p.a. for FY25–27.

Business Segment Deep Dive

Energy Transition: Growth Engine and Defensive Anchor

• City Energy: Sole producer/retailer of piped town gas in Singapore, serving 910,000+ households. Business is regulated, with growth from commercial/industrial demand, new housing, and expansion into EV charging and hydrogen.
• Aramco Gas Pipelines: 20-year lease with minimum contracted volume, quarterly tariff income, and variable distribution with a guaranteed minimum.
• KMC (Keppel Merlimau Cogen): 1,300MW gas plant, fixed monthly payments under a Capacity Tolling Agreement until 2040, insulated from market tariff/fuel volatility.
• German Solar Portfolio: 529MW capacity, 20-year fixed lease, fixed monthly rental fees, 45% effective interest. Expansion pipeline via Enpal.
• Windfarm Portfolio: Onshore (275MW, Nordics/UK) and offshore (465MW, Germany) with guaranteed floor pricing and feed-in-tariffs through 2038. Exclusive right to 1.1GW future pipeline projects.

Environmental Services: Stable, Concession-Based Income

• Singapore Waste & Water Plants: Five plants with capacity payments, variable payments, and incentive income. Concessions expiring between 2025 and 2045. Contribution declining as agreements phase out.
• EMK (Korea): 52% stake in South Korea’s third-largest WTE operator and landfill owner. Revenue volatility due to market pricing; expected improvement as landfill regulations tighten.

Distribution & Storage: Rapidly Growing Evergreen Business

• Ventura: 97.7% stake in Australian bus operator. Fixed-fee, cost-indexed government contracts; stable income uncorrelated to ridership. Growth from charter and school services. Recently divested 24.62% stake.
• Ixom: Leading specialty chemicals distributor in Australia/New Zealand, with global reach. Growth via acquisitions (e.g., Bitumen business) and organic expansion.
• Global Marine Group: Pending 46.7% acquisition, providing subsea cable installation/maintenance. 80% of revenue from long-term contracts (5–7 years).

Contracted Cash Flows: The Bedrock of KIT’s Stability

In 1Q25, 60% of KIT’s distributable income stemmed from assets with contracts exceeding 15 years, while 83% of income was from ongoing contracts, delivering high visibility and distribution stability. Key long-term contracts include City Energy, Aramco, KMC, German solar, and KMEDP. Shorter contracts or demand-driven income come from Ventura and Ixom.

Macro Tailwinds: Riding the Wave of Global Infrastructure Investment

• Global trends in renewables, AI, urbanization, and government infrastructure spending support KIT’s growth thesis.
• The German government’s €500bn infrastructure fund (2024–2036) and broader global demand for digital/energy transition assets create acquisition opportunities.

Peer Analysis: Competitive Positioning in Global Infrastructure

KIT offers one of the highest dividend yields among global infrastructure peers, with a competitive EV/EBITDA multiple and above-average ROE.

Management and Governance: Experienced Leadership, Strong Sponsor

• CEO Kevin Neo: Appointed 2023, extensive experience in private equity and M&A, led major investments (e.g., Ixom).
• CFO Raymond Bay: Appointed 2024, with deep expertise in corporate finance, fundraising, and treasury.
• Head of Asset Management Marc Liu: Joined 2015, with a track record in integrating new acquisitions and long-term asset planning.
• Sponsor: Keppel Ltd (16.8% stake) – a global asset manager and operator with sustainability expertise and a strong pipeline for future deals.

Financial Strategy: Capital Management and Dividend Policy

• Active capital recycling via asset sales (e.g., partial Ventura stake, Philippine Coastal divestment).
• Recent equity fundraisings: S\$200m (Aug 2024, S\$0.438/sh placement), S\$300m (FY23), S\$500.8m (FY19), S\$525m (FY15).
• S\$700m in outstanding perpetual securities with rates ranging from 4.30% to 4.90%.
• Gearing projected to rise to c.50% on capex and acquisitions, but expected to moderate with debt repayments.
• Interest coverage remains strong at 6.8x (Mar 2025), with healthy liquidity (S\$497m cash balance).
• Dividend payout ratio over FFO offers a margin of safety; 8-year dividend CAGR of 1% (excluding special dividends).

Risks: Navigating Concession Roll-offs and Growth Asset Complexity

• Singapore concession assets are gradually expiring (2025–2045), with income contribution set to decline. Replacement via evergreen assets is underway.
• Upticks in capex (S\$160m–S\$130m in FY25–26F) may impact cash available for distribution, especially for assets like Ixom and Senoko WTE.
• Risk profile has increased with overseas projects and complex assets (windfarms, solar, chemicals, bus, landfill).

ESG Profile: Strong Commitment, Notable Achievements and Challenges

• Rated ‘A’ in MSCI ESG, with zero incidents of non-compliance, corruption, or data breaches in 2024.
• Targeting net zero Scope 1 and 2 emissions by 2025 and 2GW of renewables by 2030.
• 76% increase in renewable energy capacity in 2024, moving toward decarbonization and net-zero by 2050.
• Significant improvement in safety performance, despite a fatal subcontractor incident in 2023; overall incidents and lost time rates are declining.
• Integrated climate scenario analysis and workforce development (23+ hours training per employee), with 1,100+ volunteer hours in community engagement.

Valuation and Recommendation: Attractive Upside and Reliable Yield

• Target Price: S\$0.45 per unit (blended DDM and 10x P/FFO).
• Implied upside: 13.9% from current price, with total return potential c.24%.
• KIT currently trades at a 10.1% yield—above the historical average of 9.2%—and at a P/FFO multiple of 10.4x (2019–24 historical average).
• Key catalysts: Interest rate cuts, accretive acquisitions, faster-than-expected expansion in evergreen business lines.

Conclusion: KIT – A Defensive, High-Yield Play on Global Infrastructure

Keppel Infrastructure Trust delivers a rare combination of high yield, stable distributions, inflation-resistant cash flows, and strong ESG credentials. With a clear strategy to replace expiring concessions with evergreen growth assets, active capital management, and a strong sponsor in Keppel Ltd, KIT is well-positioned to capture secular trends in renewables, digital infrastructure, and sustainable urbanization. Investors seeking a dependable, defensive play in the infrastructure space should keep KIT firmly on their radar.