Keppel Infrastructure Trust (KIT SP): 1Q25 DI Boosted by One-Off Gain; Maintain BUY Rating & SGD 0.50 FV 1

OCBC Investment Research Private Limited 22 April 2025
Keppel Infrastructure Trust (KIT) 1Q25 Analysis: One-Off Gain Lifts Income Amid Segment Challenges; BUY Rating Affirmed

Investment Thesis: A Defensive Play with Growth Potential

Keppel Infrastructure Trust (KIT), trading under the ticker KEPL.SI / KIT SP, stands as a premier investment vehicle for those seeking exposure to essential infrastructure businesses and assets. It aligns with key investment themes like sustainability, energy transition, and the circular economy. KIT boasts a diversified portfolio encompassing Energy Transition, Environmental Services, and Distribution & Storage segments, primarily located in jurisdictions with robust legal frameworks.
A significant portion of KIT’s portfolio (over 90%) benefits from long-term concession agreements and is shielded from inflation through cost pass-through mechanisms or strong pricing power. Acquisitions remain a cornerstone of its growth strategy, significantly bolstered by access to the broader Keppel ecosystem. In the current climate of heightened market volatility, KIT presents a compelling defensive investment, further supported by the secular trend of increasing infrastructure spending globally.

1Q25 Financial Performance: Headline Growth Masks Underlying Softness

Keppel Infrastructure Trust reported a notable 27.7% year-on-year (YoY) increase in its 1Q25 distributable income (DI), reaching SGD65.0 million. However, this figure was significantly inflated by a one-off gain from the divestment of Philippine Coastal.
When adjusting for this gain and other one-offs from the previous year (specifically, 1Q24 growth CAPEX and upfront financing fees at Philippine Coastal, along with performance fees), the adjusted DI for 1Q25 actually declined by 31.9% YoY to SGD45.5 million. This indicates underlying softness in operational performance compared to the previous year, despite the positive headline number.

Segment Performance Breakdown

Distribution & Storage: A Standout Quarter This segment emerged as the strongest performer in 1Q25. Funds from operations (FFO) surged by 37.9% YoY to SGD24.0 million. The growth was broad-based, with all assets within the segment delivering strong results. Additionally, KIT benefited from the first full quarter of FFO contribution from Ventura.
Energy Transition: Facing Headwinds The Energy Transition segment experienced a 15.8% YoY decrease in FFO, settling at SGD61.6 million. The primary drag came from the renewables portfolio (wind farms and the German solar portfolio), where FFO fell approximately 23% YoY. This decline was attributed mainly to the delayed recognition of interest expenses related to the German solar portfolio, shifting from 1Q24 to 2Q24. Performance from City Energy remained relatively stable, although fuel cost under-recovery partially offset revenue growth. The Aramco Gas Pipelines Company (AGPC) reported lower YoY throughput during the quarter, but volumes remained above the minimum commitment levels.
Environmental Services: Challenges Persist FFO from the Environmental Services segment saw a significant drop of 42.7% YoY to SGD12.9 million. Eco Management Korea (EMK) maintained high availability and full incineration capacity utilization, yet its FFO was negative SGD0.5 million due to ongoing volatility in landfill prices. Management anticipates a gradual improvement in average selling prices (ASP) moving forward. The Singapore Waste and Water assets generated SGD13.4 million in FFO, down 34% YoY. While KIT saw the first full-quarter contribution from the Keppel Marina East Desalination Plant (KMEDP), this was offset by lower nominal contributions from Senoko WTE. Furthermore, the concession for the SingSpring Desalination Plant is set to expire at the end of the year, and KIT is currently exploring possibilities for an extension.

Capital Management and Debt Profile

As of 31 March 2025, KIT’s net gearing increased slightly by 0.4 percentage points (ppt) over the quarter to 40.8%. Management noted that gearing would have been around 38% if the proceeds from the Philippine Coastal divestment, received in early April, were accounted for.
The weighted average cost of debt rose by 18 basis points (bps) during the quarter to 4.69%. Importantly, 75% of the Trust’s debt is either on fixed rates or hedged against interest rate fluctuations. A hypothetical 25bps increase in interest costs would impact the 1Q25 DI by approximately 0.8%. KIT has successfully refinanced all debts maturing in FY25, with the next significant debt maturity tower scheduled for FY26.

Tariff Exposure and Outlook

KIT has minimal direct exposure to potential US tariffs, estimated at only around SGD1 million of DI through its Ixom asset. Any impact from tariffs is expected to be indirect. Management expressed confidence in the defensive nature and resilience of KIT’s portfolio across various business cycles.
Following the 1Q25 results, minor adjustments were made to forecasts. The FY25 distribution per unit (DPU) forecast was slightly lowered by 0.3%, while the FY26 DPU forecast saw a modest increase of 0.6%. Consequently, the fair value estimate remains unchanged at SGD0.50. The BUY rating on KIT is maintained.

Results Highlights

Source: Trust manager, Internal estimates

ESG Updates

KIT received an ESG rating upgrade in May 2024. The Trust demonstrates leadership among global peers in business ethics and water management practices, while its corporate governance aligns with industry standards. Areas identified for potential improvement include enhancing disclosures on measures to reduce air pollutants and establishing quantitative targets for health and safety management.
In 2024, KIT strengthened its environmental stewardship commitments by setting a new target to achieve net zero emissions across Scope 1 and 2 by 2050. This is complemented by an updated goal to reach a renewables capacity of 2GW by 2030. KIT’s total renewables capacity already increased significantly from 740MW at the end of 2023 to approximately 1.3GW by the end of 2024, driven by the phased acquisition of a solar portfolio in Germany.

Potential Catalysts

Completion of earnings-accretive acquisitions.
Successful divestment of mature assets, with proceeds recycled into higher-yielding opportunities.
Favorable extension or renewal of existing concessions that are due to expire within the next three years.

Investment Risks

Lower-than-anticipated contractual availability of assets, leading to reduced fixed capacity payments.
Challenges in refinancing debt at favorable costs.
Potential regulatory changes impacting operations or profitability.

Valuation Analysis

The following table compares Keppel Infrastructure Trust against its peers based on estimated figures for FY25 and FY26:

Source: Refinitiv

Historical valuation charts indicate KIT’s Price/Book ratio and Dividend Yield relative to their historical averages and standard deviation bands over the past five years.

Company Overview

Keppel Infrastructure Trust (KIT) is a diversified business trust listed on the Singapore Exchange, managing approximately SGD9.0 billion in assets as of 31 December 2024. KIT plays a vital role in Singapore’s economy by providing essential services such as electricity and gas supply, waste management, and water security, contributing to the circular economy and economic growth.
KIT’s investment strategy focuses on building a diversified portfolio of core and core-plus infrastructure assets linked to economic growth and domestic inflation, aiming for long-term distribution growth and a sustainable future.
The Trustee-Manager is Keppel Infrastructure Fund Management Pte. Ltd., a wholly owned subsidiary of Keppel Capital Holdings Pte. Ltd., a leading asset manager with expertise in real estate, infrastructure, data centers, and alternative assets globally. KIT is sponsored by Keppel Infrastructure Holdings Pte. Ltd., which invests in, owns, and operates competitive energy and environmental infrastructure solutions. KIT is included in the FTSE ST Large/Mid Cap Index and the FTSE ST Mid Cap Index.
Portfolio Breakdown (as of 31 Dec 2024):

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

Key Metrics Trend:

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

Company Financials

Financial Summary

Source: Refinitiv, Internal estimates

Key Ratios

Source: Refinitiv, Internal estimates

Income Statement

Profitability Ratios

Credit Ratios

Source: Refinitiv