Category: MIIF

 

MIIF – AmFraser

Maintain HOLD on limited capital upside

Divestment resolution approved. MIIF has obtained its shareholder approval for the proposed divestment of its 47.5% stake in Taiwan Broadband Communications (TBC) to Asian Pay Television Trust (APTT) on 30 April. Unitholders will be entitled to MIIF APTT units in proportion to the number of issued shares held as at the Record date of 9 May. The exentitlement date falls on 7 May and APTT units are expected to commence trading on 29 May.

APTT has an indicative yield of 7.298%. According to its preliminary prospectus, APTT’s initial public offering comprises 1.44bil units. The indicative price range was set between S$0.92 and S$1, representing a projected FY13 yield of 7.298%.

Factoring in our assumption of a fair value yield of 7.5% for APTT, we estimate that MIIF would receive S$527.4mil from its divestment of TBC to APTT, or 45.85 cents per share. This represents a gain of 2.85 cents per share over TBC’s current book value of 43 cents per share.

Maintain HOLD. We raise our fair value to S$0.66 after factoring in our estimated divestment proceeds for MIIF. We have also adjusted our valuation model to assume a divestment timeframe of 3 years for the remaining assets Hua Nan Expressway and Changshu Xinghua Port. Our TP of S$0.66 represents a capital upside of only 7.2% over its last closing of S$0.615. Hence, we maintain our HOLD call on MIIF given the limited scope for capital appreciation.

Unitholders who wish to invest in APTT should remain vested in MIIF. We estimate that MIIF’s Unitholders would be entitled to around 472 shares in APTT for every 1000 shares they hold in MIIF. Assuming a theoretical ex-entitlement price of 21.4 cents, this translates into an overall cost of $401 for 472 shares in APTT. This is relatively lower than the cost of subscribing to the IPO of APTT directly or purchasing APTT’s shares on the open market, which is estimated to be around $459 on a yield of 7.5%. Moreover, we note that a direct purchase of APTT shares would incur additional transaction costs.

MIIF – AmFraser

Maintain HOLD on limited capital upside

Divestment resolution approved. MIIF has obtained its shareholder approval for the proposed divestment of its 47.5% stake in Taiwan Broadband Communications (TBC) to Asian Pay Television Trust (APTT) on 30 April. Unitholders will be entitled to MIIF APTT units in proportion to the number of issued shares held as at the Record date of 9 May. The exentitlement date falls on 7 May and APTT units are expected to commence trading on 29 May.

APTT has an indicative yield of 7.298%. According to its preliminary prospectus, APTT’s initial public offering comprises 1.44bil units. The indicative price range was set between S$0.92 and S$1, representing a projected FY13 yield of 7.298%.

Factoring in our assumption of a fair value yield of 7.5% for APTT, we estimate that MIIF would receive S$527.4mil from its divestment of TBC to APTT, or 45.85 cents per share. This represents a gain of 2.85 cents per share over TBC’s current book value of 43 cents per share.

Maintain HOLD. We raise our fair value to S$0.66 after factoring in our estimated divestment proceeds for MIIF. We have also adjusted our valuation model to assume a divestment timeframe of 3 years for the remaining assets Hua Nan Expressway and Changshu Xinghua Port. Our TP of S$0.66 represents a capital upside of only 7.2% over its last closing of S$0.615. Hence, we maintain our HOLD call on MIIF given the limited scope for capital appreciation.

Unitholders who wish to invest in APTT should remain vested in MIIF. We estimate that MIIF’s Unitholders would be entitled to around 472 shares in APTT for every 1000 shares they hold in MIIF. Assuming a theoretical ex-entitlement price of 21.4 cents, this translates into an overall cost of $401 for 472 shares in APTT. This is relatively lower than the cost of subscribing to the IPO of APTT directly or purchasing APTT’s shares on the open market, which is estimated to be around $459 on a yield of 7.5%. Moreover, we note that a direct purchase of APTT shares would incur additional transaction costs.

MIIF – AmFraser

Divesting its crown jewel TBC

Divestment of crown jewel Taiwan Broadband Communications (TBC). Macquarie International Infrastructure Fund (MIIF) has proposed the divestment of its 47.5% stake in TBC to a new SGXST listed business trust Asian Pay Television Trust (APTT). According to MIIF, APPT has obtained a letter of eligibilitytolist from SGX and is targeting an initial public offering (IPO) by end May pending shareholders’ approval. Under the proposed divestment, shareholders could elect to receive their proportionate share of the MIIF APPT units or elect to receive their entitlement in cash based on APPT’s IPO price.

Equity listing of TBC more valueenhancing for Unitholders. MIIF’s decision to pursue an equity listing for TBC is an opportunistic move amid investors’ avid hunting for yields. Over the past 18 months, MIIF has received unsolicited trade offers for TBC, which were below the minimum valuation of S$469.5mil. The minimum valuation for TBC is set at 95% of its book value and has taken into consideration all transaction costs in relation to the IPO listing.

Shareholders who wish to invest in APTT could remain vested in MIIF and receive their proportional share of APTT units. TBC’s yield is estimated to be around 9.3%, which is enticing considering the average 56% yields among SREITs and business trusts at present. A fair value yield of 8% will imply potential upside of 16% respectively for APTT’s Unitholders, assuming that the IPO is priced at book.

Downgrade to HOLD on limited capital upside. Alternatively, for investors who do not wish to take a stake in APTT, we believe the recent appreciation in MIIF’s share price could present an opportunity for Unitholders to sell into strength and switch into other highyield plays with better prospects for growth. Our top pick under our coverage is Hutchison Port Holdings Trust (BUY, FV: $0.955) that boasts a forward yield of 7.28.1%. Moreover, we note that there remain uncertainties surrounding the divestiture plans for the remaining assets (remaining divestments could take between 1218 months).

We lower our fair value to S$0.590 after taking into account MIIF’s distributions in Q113 and the expenses incurred in relation to its proposed divestiture of TBC. This represents a potential capital upside of only 1.4% over its current share price.

According to MIIF, it will maintain its policy of distributing its free cash flow to its Unitholders semiannually. We project its FY14 forward yield at 9.2% following its divestment of TBC, and this translates into a total return of 10.6%.

MIIF – AmFraser

Unearthing the treasure chest

Unearthing the treasure chest. Macquarie International Infrastructure Fund (MIIF) has concluded its strategic review on December 18 2012 with a decision to divest its assets namely Taiwan Broadband Communications (TBC), Changshu Xinghua Port (CXP), Hua Nan Expressway (HNE) and Miaoli Wind Company (MWC), as well as return excess existing cash to shareholders. The divestment of the assets is likely to take 1218 months.

We expect a oneoff special dividend of 4.03 cents per share, on top of a regular dividend of 2.75 cents per share, to be distributed in February 2013. Excess cash available for distributions should amount to approximately S$46.4mil.

Current valuations for MIIF’s assets are certainly not demanding, with CXP, HNE and TBC valued at S$101.6mil, S$140.2mil and S$492.8mil respectively. We believe MIIF is unlikely to face significant difficulties in offloading its assets at current valuations and could potentially realise a slight premium over its current valuations, given the yieldhungry climate and the assets’ strong cash flow generation. The recent deals of Taiwanese cable TV operators Kbro and China Network Systems were completed at EV/EBITDA multiples of 1112 times, which could serve as a benchmark for TBC’s valuation. TBC has a EV/EBITDA multiple of 10x.

Regulatory risk already factored into HNE’s valuation. MIIF has already written down the book value of HNE by S$75.8mil to factor in the impact of recent toll adjustments. We are therefore comfortable that HNE’s current valuation could serve as a good proxy to its future sale price.

A cash windfall. Based on the current book value of its assets, we estimate that MIIF’s asset divestments would generate distributable income of 63.2 cents after factoring in management fees. In our opinion, the variable portion of the management fees is likely to be structured as a percentage of the asset sale prices in order to keep management’s interests better aligned with those of shareholders’. We assume that variable management fees would represent 1% of the asset sale prices.

We raise our fair value for MIIF to 70.0 cents per share from 68 cents, and may make further adjustments pending further visibility on asset divestment plans.

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.