MIIF – DBSV

Buoyant dividend income in 1Q

Higher dividend income in 1Q12 driven by organic growth and bigger stake in Taiwan cable TV asset

Key risk is toll rate cut at Hua Nan Expressway, but this is already expected

Risk-reward continues to be attractive given 9.5% yield; Maintain BUY with TP of S$0.64

Highlights

1Q12 results in line. The fund generated net dividend income of S$21.3m, up 181% y-o-y, largely owing to the higher 47.5% stake in Taiwan Broadband Communications (TBC), compared to 20% last year. Even if we strip out the impact of a larger stake, dividends from TBC grew 6%, in line with organic growth at the asset last year. To note, 1Q dividend income is derived only from TBC (half-yearly payout) as the other two assets – Changshu Xinghua Port (CXP) and Hua Nan Expressway (HNE) – only pay dividends once a year in the 3rd quarter of the year.

Underlying assets performance healthy. Operational performance at TBC in 1Q12 continued to be healthy with EBITDA growth of 6% y-o-y, as growth in digital cable TV subscribers surpassed expectations. HNE also surprised on the upside, delivering 14% EBITDA growth in 1Q12, driven by higher traffic volumes benefiting from traffic feed from newly opened Guanghe Expressway. At CXP, revenue grew 9% y-o-y but EBITDA fell 10% owing to margin pressures and one-off costs.

Our View

Fund remains well on track to pay out 2.75Scts semi-annual dividends in FY12/13. Operational performance at HNE and CXP is expected to remain healthy. The key risk is a possible toll rate reduction at HNE Phase I, as the Guangdong government will be introducing uniform toll road standards in 2012. Our numbers already reflect a toll rate cut at HNE Phase I of about 20% by mid-2012, but this could be further delayed, as there has been no communication yet from local authorities.

Recommendation

Yield of 9.5% is hard to ignore. No change to our SOTP valuation of S$0.64, as we have already factored in downside at HNE. Maintain BUY for close to 20% total return potential. A worst-case impact from toll rate cut at HNE could be a cut in FY12 DPU to 5.0Scts to smoothen the impact in FY12/13. This still implies 8.6% yield at current prices. The fund bought back 13.7m shares in 1Q12 and we expect share buyback activities to continue, given the share price discount to fund NAV and the lack of suitable acquisition opportunities in the near term.

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.

MIIF – AmFraser

High-yield TOP pick

High-yield TOP pick: In our 13 Mar 2012 report titled “The Yield Hunt”, we named MIIF our top high-yield pick with a 9.6% dividend yield, ahead of three other stocks with a history of increasing dividends. We think investing in high-dividend-yield stocks is a way to protect and to grow wealth, particularly in an inflationary and uncertain environment.

Fund out, funds in: Over the last months, we saw MIIF’s once-largest shareholder Abu Dhabi Investment Authority (ADIA) reduce its stake from 10% to 6% today. We think it is possible that it is looking to exit from this investment entirely, thus putting a near-term cap on MIIF’s share price.

For every seller there is a buyer, and we note that a couple of funds have bought up MIIF in force. These are Asset Value Investors (7.5%) and Long Investment Management Int’l (6.2%); both are value-focused. While we can only speculate on ADIA’s reasons for selling, the strong buying by two separate value-funds is indicative of their private valuations being sufficiently in excess of the market price.

Another way to value MIIF is to note that management has already valued the three assets using the latest information, a lot of which is private and superior to publicly available data, resulting in an NAV of $0.8123 per share.

From this figure we would subtract the present value of all future expenses, totalling $125m (we have conservatively estimated this figure on the high side), equivalent to $0.1057, for a FV of $0.707, not too different from our DCF FV of $0.691.

Price supports; dividend yield promotes outperformance. MIIF’s share buybacks are backed by S$110m in cash and a dividend yield in excess of 9%. We note that its share price tracks the market fairly closely (up until the recent outperformance), and the very high yield should ensure outperformance relative to the market each year.

Focus on underlying value especially from a portfolio perspective: In our eyes, MIIF is a strong dividend play (9.6%) with significant capital gains potential (20%) for a total upside close to 30%. This combination is rather difficult to find elsewhere. The dividend is also likely to increase with asset growth—we forecast the next dividend growth in 2014F. We reiterate our Buy call with an unchanged FV of $0.690.

MIIF – AmFraser

High-yield TOP pick

High-yield TOP pick: In our 13 Mar 2012 report titled “The Yield Hunt”, we named MIIF our top high-yield pick with a 9.6% dividend yield, ahead of three other stocks with a history of increasing dividends. We think investing in high-dividend-yield stocks is a way to protect and to grow wealth, particularly in an inflationary and uncertain environment.

Fund out, funds in: Over the last months, we saw MIIF’s once-largest shareholder Abu Dhabi Investment Authority (ADIA) reduce its stake from 10% to 6% today. We think it is possible that it is looking to exit from this investment entirely, thus putting a near-term cap on MIIF’s share price.

For every seller there is a buyer, and we note that a couple of funds have bought up MIIF in force. These are Asset Value Investors (7.5%) and Long Investment Management Int’l (6.2%); both are value-focused. While we can only speculate on ADIA’s reasons for selling, the strong buying by two separate value-funds is indicative of their private valuations being sufficiently in excess of the market price.

Another way to value MIIF is to note that management has already valued the three assets using the latest information, a lot of which is private and superior to publicly available data, resulting in an NAV of $0.8123 per share.

From this figure we would subtract the present value of all future expenses, totalling $125m (we have conservatively estimated this figure on the high side), equivalent to $0.1057, for a FV of $0.707, not too different from our DCF FV of $0.691.

Price supports; dividend yield promotes outperformance. MIIF’s share buybacks are backed by S$110m in cash and a dividend yield in excess of 9%. We note that its share price tracks the market fairly closely (up until the recent outperformance), and the very high yield should ensure outperformance relative to the market each year.

Focus on underlying value especially from a portfolio perspective: In our eyes, MIIF is a strong dividend play (9.6%) with significant capital gains potential (20%) for a total upside close to 30%. This combination is rather difficult to find elsewhere. The dividend is also likely to increase with asset growth—we forecast the next dividend growth in 2014F. We reiterate our Buy call with an unchanged FV of $0.690.

Yield Stocks – AmFraser

DIVIDEND YIELD

We think investing in high yield stocks is a way to protect and grow wealth, particularly in an inflationary yet uncertain environment. When the market dips or corrects, yields rise on lower prices, which is an opportune time to invest. Should the market remain flat thereafter, investors have dividend returns to fall back on even when there is no capital appreciation.

We shortlisted stocks based on three criteria: 1) more than 7% dividend yield, 2) more than $150mil market capitalization and 3) trading volume in the past 30days of more than 100k shares. Macquarie International Infrastructure Fund ($0.570, BUY), on which we have a buy rating, topped the list with 9.6% yield.

Accordingly, we examined each stock to determine 1) the consistency of the dividend payouts in the past three years; and 2) its ability to maintain earnings. Out of 15 high yield stocks, Second Chance Properties ($0.365, UNRATED), Sim Lian Group ($0.605 , UNRATED) and QAF ($0.670, UNRATED) have the strongest combination in terms of consistency in dividend payout and earnings growth.

Second Chance Properties is trading at 8.8% dividend yield and 5.6x T12M P/E. It has a reasonable gearing of 0.37x, with bulk of its assets in retail properties in Singapore. It has a growing DPS of 15.0% CAGR over FY0711, backed by strong and stable cash flow from operations where they achieved S$9.0S$12.0mil every year in the past five financial years.

Sim Lian Group is trading at 7.9% yield, 2.6x FY11P/E and 0.9x P/B. Balance sheet has strengthened over the years, with net gearing ratio dropping from 3.3x in FY08 to 1.1x in FY11. The company recorded 110% YoY jump in earnings in 1HFY12 to $139m.

QAF is trading at 7.5% dividend yield, 5.8x T12M P/E and 0.9x P/B. Their growth in DPS over the past 5 FYs has been exponential, with CAGR of 19%. With a strong current ratio of 1.5x and strong cash flow from opera

MIIF – AmFraser

9.5% yield. What’s not to like?

No news in the financial results: As mentioned before, the most important quarter for MIIF is 3Q when the bulk of its income flows in from the assets. FY2011 revenues are up 33% to $59.2m, and the adjusted net profit is up 47.4% to $47.9m, both exactly in line.

 

Real meat is in operational performance at the asset level: Revenue and EBITDA numbers were within 4% of our estimates in general, but the volume and subscriber numbers showed a little more character. For Changshu Xinghua Port (CXP), the logs segment grew by 52% in one year, topping our estimate by 40%.

 

We were too pessimistic on traffic volumes for Hua Nan Expressway (HNE) due to the detolling of the competing Xinguang Expressway, with actual traffic coming in 2-6% higher than our estimate across all segments. However, management has flagged the risk of a 20% downward revision in the tariffs for Phase I of the expressway, which for conservativeness we have incorporated into 2012F-2026F projections.

Taiwan Broadband Communications’ (TBC) Digital TV segment delivered a terrific 63% growth to 90,632 subscribers, in line with our 90,000 estimate. The Cable TV and Broadband segments also showed in-line growth of 1.4% and 7.5% respectively (See Page 2 for the detailed treatment).

 

Another 2.75c dividend: We continue to expect MIIF to pay 2.75c every half-year, for a full-year yield of 9.5%. This exceeds the current EPS of 3.8c, but is backed by 9c per share in net cash. EPS is growing at a rapid clip, and should exceed 5.5c by 2014, at which point we forecast dividend growth. We maintain that this 5.5c dividend is sustainable.

 

Annual revaluation summary: MIIF revalued CXP up by $11.5m, reflecting strong growth in current and forecast volumes across most of its cargo types. HNE’s value was lowered by $17.6m, reflecting the adverse effect of the detolling of Xinguang Expressway and the possible tariff reduction. TBC’s value was raised $40.5m, mostly the revaluation of the newly-acquired 20% stake.

 

Share buybacks to resume: MIIF suspended its share buybacks prior to releasing the results. We expect buybacks to continue today, supporting the share price.

 

What’s not to like? Maintain BUY, raise FV to $0.690: Overall, MIIF’s assets have delivered stronger growth than expected. Our valuation methodology remains unchanged – DCF of the individual asset dividends to MIIF, less fund-level expenses, at (rather high) discount rates of 14%-19%. Updating our model with the latest volume numbers, our valuation rises to $0.690. MIIF offers both high sustainable dividends with some capital gains potential. BUY.

MIIF – AmFraser

9.5% yield. What’s not to like?

No news in the financial results: As mentioned before, the most important quarter for MIIF is 3Q when the bulk of its income flows in from the assets. FY2011 revenues are up 33% to $59.2m, and the adjusted net profit is up 47.4% to $47.9m, both exactly in line.

 

Real meat is in operational performance at the asset level: Revenue and EBITDA numbers were within 4% of our estimates in general, but the volume and subscriber numbers showed a little more character. For Changshu Xinghua Port (CXP), the logs segment grew by 52% in one year, topping our estimate by 40%.

 

We were too pessimistic on traffic volumes for Hua Nan Expressway (HNE) due to the detolling of the competing Xinguang Expressway, with actual traffic coming in 2-6% higher than our estimate across all segments. However, management has flagged the risk of a 20% downward revision in the tariffs for Phase I of the expressway, which for conservativeness we have incorporated into 2012F-2026F projections.

Taiwan Broadband Communications’ (TBC) Digital TV segment delivered a terrific 63% growth to 90,632 subscribers, in line with our 90,000 estimate. The Cable TV and Broadband segments also showed in-line growth of 1.4% and 7.5% respectively (See Page 2 for the detailed treatment).

 

Another 2.75c dividend: We continue to expect MIIF to pay 2.75c every half-year, for a full-year yield of 9.5%. This exceeds the current EPS of 3.8c, but is backed by 9c per share in net cash. EPS is growing at a rapid clip, and should exceed 5.5c by 2014, at which point we forecast dividend growth. We maintain that this 5.5c dividend is sustainable.

 

Annual revaluation summary: MIIF revalued CXP up by $11.5m, reflecting strong growth in current and forecast volumes across most of its cargo types. HNE’s value was lowered by $17.6m, reflecting the adverse effect of the detolling of Xinguang Expressway and the possible tariff reduction. TBC’s value was raised $40.5m, mostly the revaluation of the newly-acquired 20% stake.

 

Share buybacks to resume: MIIF suspended its share buybacks prior to releasing the results. We expect buybacks to continue today, supporting the share price.

 

What’s not to like? Maintain BUY, raise FV to $0.690: Overall, MIIF’s assets have delivered stronger growth than expected. Our valuation methodology remains unchanged – DCF of the individual asset dividends to MIIF, less fund-level expenses, at (rather high) discount rates of 14%-19%. Updating our model with the latest volume numbers, our valuation rises to $0.690. MIIF offers both high sustainable dividends with some capital gains potential. BUY.

MIIF – BT

MIIF Q3 earnings up 40.7% to $33.2m

Increased earnings due to higher investment income

MACQUARIE International Infrastructure Fund (MIIF) yesterday reported net profit attributable to equity holders of $33.2 million for the third quarter, up 40.7 per cent year on year.

The earnings boost was on higher investment income. Total revenue for the three months ended Sept 30 was $35 million, up 37.7 per cent from $25.4 million for Q3 last year.

For the nine-month period, however, net profit fell 35.9 per cent to $33.2 million. And total revenue fell 23 per cent to $43.8 million.

MIIF said the falls were in line with expectations and follow the disposal of interests in Macquarie European Infrastructure Fund during Q4 2009, and Arqiva and the Canadian Aged Care in the current year. Arqiva is a communications infrastructure and media services company with a presence in Ireland, mainland Europe and the US.

MIIF said its core Asian infrastructure businesses, such as its Chinese port and expressway units, continue to perform strongly. ‘Revenue at Changshu Xinghua Port is up significantly due to continued cargo diversification, while Hua Nan Expressway has witnessed strong growth in traffic due to continuing economic recovery in the Guangdong region and the opening of phase three of the road,’ said John Stuart, CEO of MIIF’s manager, Macquarie Infrastructure Management (Asia).

‘Management continues to focus on executing MIIF’s strategy of acquiring Asian infrastructure businesses,’ he said. ‘We have reviewed a number of investment opportunities in which to deploy MIIF’s significant cash balances. However, none of these have met the strict investment criteria that we apply.’

MIIF said in its financial statement that it has cash and cash equivalents of $487.7 million.

MIIF units lost half a cent yesterday to close at 58 cents.

MIIF – BT

MIIF Q3 earnings up 40.7% to $33.2m

Increased earnings due to higher investment income

MACQUARIE International Infrastructure Fund (MIIF) yesterday reported net profit attributable to equity holders of $33.2 million for the third quarter, up 40.7 per cent year on year.

The earnings boost was on higher investment income. Total revenue for the three months ended Sept 30 was $35 million, up 37.7 per cent from $25.4 million for Q3 last year.

For the nine-month period, however, net profit fell 35.9 per cent to $33.2 million. And total revenue fell 23 per cent to $43.8 million.

MIIF said the falls were in line with expectations and follow the disposal of interests in Macquarie European Infrastructure Fund during Q4 2009, and Arqiva and the Canadian Aged Care in the current year. Arqiva is a communications infrastructure and media services company with a presence in Ireland, mainland Europe and the US.

MIIF said its core Asian infrastructure businesses, such as its Chinese port and expressway units, continue to perform strongly. ‘Revenue at Changshu Xinghua Port is up significantly due to continued cargo diversification, while Hua Nan Expressway has witnessed strong growth in traffic due to continuing economic recovery in the Guangdong region and the opening of phase three of the road,’ said John Stuart, CEO of MIIF’s manager, Macquarie Infrastructure Management (Asia).

‘Management continues to focus on executing MIIF’s strategy of acquiring Asian infrastructure businesses,’ he said. ‘We have reviewed a number of investment opportunities in which to deploy MIIF’s significant cash balances. However, none of these have met the strict investment criteria that we apply.’

MIIF said in its financial statement that it has cash and cash equivalents of $487.7 million.

MIIF units lost half a cent yesterday to close at 58 cents.

MIIF – BT

MIIF sells Arqiva stake

SHARES of Macquarie International Infrastructure Fund (MIIF) rose 3.7 per cent yesterday after it announced that it has agreed to sell its 8.7 per cent interest in Arqiva in the UK for a total cash consideration of £116.5 million (S$244.9 million).

The net proceeds are expected to total $240.1 million, said MIIF, which is now targeting acquisitions in Asia.

The announcement, made before the start of trading, led the stock to close up two cents at 56 cents, after touching an intraday high of 58 cents.

The divestment will be made to three infrastructure investors, all of which are existing shareholders of Arqiva.

‘Following the sale of MIIF’s interest in Arqiva, its portfolio will comprise entirely of direct investments in Asia. This will be a significant milestone for MIIF,’ said John Stuart, CEO of MIMAL, MIIF’s manager. ‘Importantly, the proposed sale is at a significant premium to the value implied by MIIF’s prevailing share price.’

Assuming the sale of MIIF’s interests in Arqiva as well as Macquarie European Infrastructure Fund and Canadian Aged Care, MIIF is expected to have a cumulative cash balance at the end of May this year of approximately $474.0 million which equates to 35 cents per share. The value of MIIF’s remaining investments is $523 million, or 39 cents per share, according to the fund.

‘MIIF’s management is now focused on identifying attractive acquisition investments in Asia. With this significant cash balance, MIIF is well positioned to capitalise on these opportunities should they arise in the course of the year,’ said Mr Stuart.

Other options include a share buy-back or payment of a special dividend, he added.