MIIF – DBSV
Winding down is the best option
• Board initiates orderly process to divest stakes in underlying assets to realise true values
• Process could be lengthy and difficult though
• Special dividend from payout of excess cash in the near term should help support share price
• Maintain HOLD with higher TP of S$0.65
Current structure not best suited to realise value . Following the completion of a strategic review, the Board of Directors of MIIF are of the opinion that its current structure may not be suitable to realise the value of its underlying businesses, and that the stock is likely being undervalued by the market. As a result of the higher than-ideal cost of equity, MIIF’s strategy of driving growth by investing in Asian infrastructure businesses also cannot be executed properly.
Fund to wind down over time. As a result of these observations, and given the lack of acquisition opportunities, the Board has decided to distribute existing excess cash to shareholders via a special dividend, and commence the process of an orderly sale of its interests in its four assets. As and when the divestment of these assets is completed, the proceeds will be distributed to shareholders. The corporate-level debt facility will not be drawn down and lapse upon maturity. To ensure alignment of interests with shareholders the manager’s fee structure will be changed in due course.
Positive step, but upside may be limited. This strategy is intended to close the gap between share price and fund NAV. Without an acquisition story, we reckon the fund fee leakage was a key reason for this valuation gap. Excluding fund fees, our valuation for MIIF stands at about S$0.65 per share, still lower than fund NAV (internal MIIF estimates) of S$0.70 per share, as we are less optimistic on valuations for Hua Nan Expressway. We think it could eventually prove difficult and time consuming for MIIF to realise the true values of its investments, and given the uncertainties involved in the process, current entry levels don’t look attractive enough to us. In the near term though, investors can look forward to a special dividend of about 3.0Scts from the payout of existing excess cash reserves, in addition to the 2.75Scts final dividend for 2H-FY12. This should lend support to the share price.