MIIF – ABN AMRO

Silver medal now, room to improve

MIIF’s 1H08 result was slightly behind our expectations, with the 4.25cps dividend
below our forecasts. We expect the operating environment to pick up in the 2H. Retain
view that MIIF offers good defensive qualities in an uncertain market. Buy maintained.

Distribution slightly below expectations
MIIF’s 1H dividend of 4.25cps was below our forecast of 4.35cps. On the back of this we have reduced our full year distribution from 8.8cps to 8.7cps and reduced our FY09 forecast from 9.2cps to 9.1cps (4.6% year on year growth). Net income on an adjusted basis was down 41.6%, however this was largely as a result of asset divestments.

Mixed asset performance
Of the major assets TBC was the strongest performer with EBITDA increasing 6.7% on an
increase in subscriber numbers and effective cost control. HNE showed positive traffic growth (4.5%), with its first distribution to MIIF expected by management in September this year. Arqiva recorded EBITDA growth of 6.0%, although margins declined due to the integration of the lowermargin BT SBS business. However, CXP continues to be weak on lower steel volumes, while the distribution from MEIF was slightly weaker than we forecast.

Still solid on debt
We remain comfortable with MIIF’s debt position given its weighted average asset debt maturity of eight years, interest rate hedging (54% through 2012), and no debt refinancings required until FY11. On a proportionately consolidated basis, MIIF gearing sits at 59% (comparable to other infrastructure peers), which we expect to remain at similar levels. During the half, MIIF paid down its corporate debt facility to S$53m (from S$178m) using the proceeds from its sale of MAP securities, driving down interest costs to S$1.3m (from S$3.7m in 1H07).

Maintain Buy recommendation
MIIF continues to show that it is well protected from adverse market conditions due to the stable nature of cashflows within its assets. We have lowered our valuation and target to S$1.12, largely reflecting tougher economic conditions, but we maintain our Buy recommendation as we believe MIIF has defensive qualities that are desirable in the current market uncertainty.

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