MIIF – AmFraser
A Superior Yield Play With Strong Potential Upside
A stronger showing than expected: Macquarie International Infrastructure Fund (MIIF)’s adjusted net income of S$60.2 mil has already surpassed our FY2012 estimate of S$52.3mil. The positive earnings surprises largely came from Hua Nan Expressway (HNE) and Taiwan Broadband Communications (TBC). We were more conservative on the growth rates in traffic for passenger vehicles, medium bus/trucks and large bus/trucks, and actual traffic came in about 6‐10% higher than our growth estimate across these segments. For TBC, its distributable income of NT$42.9mil exceeded our estimate of NT$41.2mil. While growth in the subscriber numbers for TBC runs largely parallel to our expectations, we were more aggressive on the cost front.
Impact of 20% toll reduction on HNE Phase 1 will be fully borne out in FY2013: Despite witnessing a double‐digit growth of 17.9% in overall traffic volumes for 9MFY2012, its distributable income plummeted by 22.7% on the back of the tolling revisions. Notably, this was partially cushioned by the impact of the opening of Guanghe Expressway, which is a complementary road to HNE, as well as the standardisation of toll rates in Guangdong Province. We believe these will continue to serve as positive contributing factors supporting our growth forecast of 12.3% in traffic volumes in FY2013. However, as FY2013 reflects the full impact of the toll reduction, we expect distributable income from HNE to decline by 16.2% in the following financial year.
TBC a crown jewel: TBC continues to deliver an impressive performance across all segments, which translated into a 47.9% growth in its distributable income. We are particularly bullish on the operational performance of the digital TV segment, as growth accelerates from a much lower base. TBC’s focus on establishing stronger penetration rates in the Digital TV market would certainly be a boon to the segment’s growth as well.
Changshu Xinghua Port (CXP) recorded 28.9% growth in distributable income for 9MFY2012, largely in line with our forecast. Growth was backed by higher log, paper and pulp volumes together with higher average tariffs on general cargo volumes.
A real head‐turner: As we roll over our estimates and lower our expenses forecast for FY2013, we raise our fair value to S$0.680. This means that MIIF provides capital appreciation potential of around 19.3%, not to mention its superior 10% dividend yield. We expect dividends to be fully covered by operational cash flows from FY2013 and raise our dividend forecast to 5.5c in FY2013. Furthermore, we see upside risks pending the outcome of MIIF’s strategic review. MIIF is currently trading at a massive discount of 21.5% to its NAV.