MIIF – AmFraser
Picture looks good
• Good set of results, very positive signs: MIIF released 2012 Q1 results that indicate strong sustainable performance. Generally, pricing power was maintained and organic growth continues to be delivered.
• Changshu Xinghua Port (CXP) enjoying pricing power: The port slightly underperformed our expectations in volumes, but this was more than made up by “higher average tariffs on general cargo volumes”, raising revenues by 8.8% on a 2% fall in tonnage. A one-off expense with regard to building a temporary stackyard to store the large paper and pulp volumes dampened EBITDA margin this quarter to 43% from 52% – we expect full-year margin at 48%.
• Large 17.3% vehicle volume jump at Hua Nan Expressway (HNE) allowed revenue to step up 12.6%, beating our expectations. Management attributed the improvement to the opening of GuangHe Expressway, a complementary road which feeds into HNE, and the return of vehicles from the now-severely-congested Xinguang Expressway whose detolling last year reduced vehicle volume at HNE. The key risk remains a potential toll-rate reduction, but our valuation already factors this in.
• Taiwan Broadband Communications (TBC) growth exactly in line, with revenue growing 4.5% YoY and EBITDA margin up 0.9ppt. We attribute the margin increase to the high growth in the Digital TV (up 52.6%) and Broadband (up 6.6%) segments, for which we expect 38% and 7% full-year growth respectively. We see a potential for upward revision in the Digital TV segment in coming quarters if the current growth rate persists.
• Now DPU looks to be covered just after 2013: We expect the 5.5c dividend to be maintained. Given the improved outlook on MIIF’s assets, we now expect operating earnings to cover the dividend by early 2014 instead of late 2014, and even as early as 2013 if the potential upward revisions do materialize.
• Fund selling action halfway done: The Abu Dhabi Investment Agency (ADIA) reduced its stake from 10% to 4.9% in the last half year. We take heart in the emergence of two value-oriented funds—Asset Value Investors and Long Investment Management—as substantial share-holders. We believe the buying speaks stronger than the selling (which is for internal reasons).
• Still our high-yield TOP pick: At 9.6% yield, MIIF continues to outshine other yield plays, especially given the strong organic growth in their assets. Our RNAV for MIIF is maintained at $0.690, with the increases in asset valuations offsetting the fall in cash due to share buybacks. MIIF offers a very high yield, future dividend growth, and a decent capital gains potential. Buy.