Broker: OCBC Investment Research
Date of Report: 30 July 2025

Keppel Infrastructure Trust: Defensive Play with Growth Potential Amidst Digital Infrastructure Expansion

Overview: Keppel Infrastructure Trust’s Strategic Position in the Utilities Sector

Keppel Infrastructure Trust (KIT), a leading Singapore-listed business trust, remains in the spotlight for investors seeking exposure to infrastructure assets with strong defensive characteristics. With a diversified portfolio across energy transition, environmental services, and distribution and storage, KIT is strategically positioned to benefit from trends such as sustainability, energy transition, and the circular economy. The trust primarily operates in jurisdictions with robust legal frameworks, and over 90% of its portfolio revenue is insulated against inflation through cost pass-through mechanisms or strong price-setting capabilities.

Key Investment Highlights and Thesis

• Steady DPU Growth: KIT delivered a 1% year-on-year increase in 1H25 distribution per unit (DPU) to 1.97 Singapore cents, perfectly in line with expectations and constituting 50% of the initial full-year forecast. The distribution is slated for payout on 13 August 2025.
• Portfolio Resilience: Growth in the Distribution & Storage segment balanced declines in the Energy Transition and Environmental Services areas, demonstrating portfolio resilience.
• Inflation Protection: Long-term concession agreements and cost pass-through mechanisms shield over 90% of the portfolio from inflation risks.
• Acquisitions Drive Growth: KIT continues to leverage the Keppel ecosystem for accretive acquisitions, ensuring sustained growth potential.
• Defensive Play: KIT’s defensive qualities make it attractive during periods of heightened market volatility, supported by secular trends in infrastructure spending.

Financial Performance Snapshot

Key Ratios:

• EBITDA margin: 21.0% (FY24), 20.8% (FY25E), 20.4% (FY26E)
• Aggregate leverage: 40.3% (FY24), 39.9% (FY25E), 44.4% (FY26E)
• Dividend yield: 8.9% (FY24), 9.0% (FY25E & FY26E)

Segment Performance: Mixed Results Tempered by Distribution & Storage Strength

• Energy Transition: Funds from operations (FFO) fell 7.8% year-on-year to SGD109.7 million, mainly due to weak wind conditions at Borkum Riffgrund 2, though improvements were seen toward the end of the half.
• Environmental Services: FFO plummeted 37.0% year-on-year to SGD25.7 million, with Eco Management Korea (EMK) reporting negative FFO due to volatile landfill prices. Signs of recovery are emerging, and the Singapore Waste and Water assets benefited from a full six-month contribution by Keppel Marina East Desalination Plant, though this did not offset the lower contributions from Senoko WTE.
• Distribution & Storage: FFO rose 3.8% year-on-year to SGD40.6 million, with Ventura’s gains partially offset by a weaker Australian dollar impacting Ixom and the divestment of Philippine Coastal in March 2025.

Capital Management: Healthy Gearing and Acquisition Firepower

• Net gearing improved from 40.8% to 39.3% as of June 2025, thanks to cash proceeds from the Philippine Coastal divestment being used to reduce debt.
• Weighted average cost of debt rose to 4.79%, with 80% of debt either fixed or hedged. A 25bps interest rate change would impact 1H25 distributable income by just 0.6%.
• There remains significant headroom for further acquisitions, underscoring management’s confidence in pursuing growth opportunities.

Valuation Update: Fair Value Raised on Lower Risk-Free Rate

• The fair value estimate has increased to SGD0.53 (from SGD0.50), reflecting a lower risk-free rate assumption (down 50bps to 2.25%) in light of a more accommodative interest rate environment.
• The model does not yet include the proposed investment in a 46.7% stake of Global Marine Group (GMG), pending unitholder approval.
• Divestment of a 24.6% stake in Ventura to Samsung Asset Management-managed funds at a 19% premium is expected to complete in 3Q25, further enhancing financial flexibility.

Peer Comparison: KIT’s Yield and Valuation Stand Out

KIT’s dividend yield remains one of the most attractive among peers, highlighting its income-generating appeal.

ESG Commitments: Sustainability at the Forefront

• KIT’s ESG rating was maintained in May 2025, with leadership in business ethics and water management compared to global peers.
• Areas for improvement include more robust disclosure on air pollutant reduction and establishing quantitative health and safety targets.
• New target set in 2024: net zero emissions across Scope 1 and 2 by 2050.
• Updated renewables investment target: achieve 2GW capacity by 2030, with total renewables capacity rising from 740MW to approximately 1.3GW in 2024 after acquiring a German solar portfolio.

Growth Catalysts and Investment Risks

Potential Catalysts:

• Earnings-accretive acquisitions
• Successful divestment of mature assets and redeployment into higher-yielding investments
• Extension or renewal of key concessions expiring in the next three years

Risks:

• Lower-than-expected contractual availability leading to reduced fixed capacity payments
• Challenges refinancing debt at competitive rates
• Regulatory uncertainties

Company Profile and Portfolio Overview

Description:

Keppel Infrastructure Trust holds around SGD9.0 billion in assets as of end-2024. The trust supports Singapore’s circular economy by providing electricity, gas, waste management, and water security solutions. It aims to maintain a diversified investment portfolio with strong linkages to economic growth and domestic inflation, underpinning sustainable distribution growth.

Portfolio by Segment (as of 31 Dec 2024):

• Energy Transition: 59.0%
• Environmental Services: 10.0%
• Distribution & Storage: 31.0%

Portfolio by Geography:

• Singapore: 23.0%
• Philippines: 3.0%
• Korea: 4.0%
• Saudi Arabia: 24.0%
• Australia & New Zealand: 28.0%
• Europe: 18.0%

Historical Financial Highlights

Conclusion: KIT Remains a Standout Defensive Income Play

KIT’s stable results, attractive yield, inflation-protected portfolio, and strong acquisition pipeline supported by the Keppel ecosystem make it a compelling choice for investors looking for stability and growth in the infrastructure sector. The trust’s ongoing shift toward digital infrastructure and renewables, combined with disciplined capital management and a robust ESG framework, position it for sustainable long-term returns. As infrastructure spending intensifies globally, KIT offers both resilience and upside in a volatile market landscape.